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Edited version of private ruling
Authorisation Number: 1011588287800
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
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Ruling
Subject: Am I in Business
Are you carrying on a business as a share trader?
Yes.
This ruling applies for the following period
Year ending 30 June 2010
The scheme commences on:
1 July 2009
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Your research and analysis of the share market is performed using Commsec and Etrade trading software, as well as from newspapers and books.
You spend at least 20-30 hours per week directly on your research, transactions and the administration of your shares.
Your objective is to make profits in a short time frame, within hours, days or weeks.
You conducted 340 trades. Your buy, sell transactions reflect your profit making objective, to hold the shares for short time periods.
You made $X in profit and $Y in losses in the 2009-2010 year.
You received dividend income in 2009-2010.
Summary
It is considered that you have the relevant indicators of being in the business of share trading.
Share trading versus share investing
There are two possible ways share trading activities may be treated for income tax purposes.
(1) Business Income- in this situation you are a share trader, the shares are regarded as trading stock and any income is included in your assessable income.
(2) Investment- in this situation, you are regarded as a share investor. Shares are treated as capital gains tax (CGT) assets and any gains from share trading are income as a capital gain, any losses from share trading are deductible as a capital loss. Dividends and similar receipts are also included in your assessable income.
'Business' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.
In FC of T v. Radnor 91 ATC 4689; (1991) 22 ATR 344 (Radnors Case), Hill J stated:
Ultimately, the question of whether the respondent was carrying on a business of dealing in shares is a question of fact and degree, a question of impression.
Whether an activity is carried on as a business is a question of fact.
The Commissioners view about carrying on a business is found in Taxation Ruling TR 97/11. Whilst TR 97/11 is about carrying on a business of primary production, the indicators in TR 97/11, which have been developed by the courts of law, are used for all cases about the carrying on of a business. These indicators include:
(1) the nature of the activities, particularly whether they have the purpose of profit making
(2) the repetition and regularity of the activities
(3) organisation in a business like manner, including whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; whether there is the keeping of books or records; and the use of a system
(4) the volume of the operations, and
(5) the amount of capital employed.
and more particularly in respect of share traders:
a) repetition and regularity in the buying and selling of shares
b) turnover
c) whether the taxpayer is operating to a plan, setting budgets and targets, keeping records
d) maintenance of an office
e) accounting for the share transactions on a gross receipts basis, and
f) whether the taxpayer is engaged in another full-time occupation.
When considering whether a person is carrying on a business, all of the above indicators must be weighed up. However, in doing so, equal weighting may not be given to each indicator. Whether a business is carried on depends on the general impression gained and whether it has a commercial flavour or character. The weighting given to each indicator may vary from case to case.
In carrying on a business of share trading, the greatest weighting is given to the repetition and regularity of the activities and organisation in a business like manner.
For example, in Radnors Case a trader was held not to be carrying on a business of share trading, primarily because there was no pattern of buying and selling and a low volume and frequency of transactions.
In general, a share trader will have a clearly defined business plan and trading method, including using fundamental and/or technical analysis and stop losses.
Application to your circumstances
In your case, you have a reasonable amount of capital invested in the activity. You trade in shares for short term gains with the intention of making a profit. Your buying and selling strategy relies on monitoring the market through online trading and newspapers and books.
You maintain records of your share transactions. You spend approximately 20-30 hours per week on the activity. You show repetition and regularity in buying and selling shares and a high volume and frequency of transactions.
After weighing up the above factors, and the circumstances surrounding your buying and selling of shares, it is considered that you are carrying on a business of share trading.
Therefore, the income from the activity is assessable under section 6-5 of the ITAA 1997.
The losses related to the activity are allowable as deductions under section 8-1 of the ITAA 1997.
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