Edited version of private ruling

Authorisation Number: 1011813918970

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.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Trading

Question 1

Is your activity of contracts for difference trading the carrying on of a business?

Answer: Yes.

Question 2

If the answer to question 1 is yes, are the profits from the activity of contracts for difference trading assessable income in terms of subsection 6-5(2) of the Income Tax Assessment Act 1997?

Answer: Yes.

Question 3

If the answer to question 1 is yes, are the losses from the activity of contracts for difference trading allowable deductions in terms of paragraph 8-1(b) of the Income Tax Assessment Act 1997?

Answer: Yes.

Questions 4 and 5

Not ruled on. (Explanation to client in ruling letter.)

Question 6

Can losses from your activity of contracts for difference trading be offset against your salary income?

Answer: Yes.

Relevant facts

You engage in the activity of trading.

You do not have a written business plan for this activity.

You regularly do research and keep yourself up to date with what is happening in the financial world.

You were given reference material in regards to trading when you opened the trading account.

You have relevant academic qualifications.

You state that you know how to review financial accounts and related financial data.

You spend time each week on the activity of trading.

You state that your main purpose in engaging in the activity is profit making.

Your record keeping consists of all the statements issued in electronic format.

You purchase and sell each month.

You gather the information for your trading activity from business news, newspapers and websites.

You provided statements detailing your trading.

Relevant legislative provisions

Section 6-5 of the Income Tax Assessment Act 1997

Section 8-1 of the Income Tax Assessment Act 1997

Reasons for decision

Question 1

Summary

This question requires a consideration of the indicators of the carrying on of a business as discussed in Taxation Ruling TR 97/11 titled Income Tax: am I carrying on a business of primary production?

Detailed reasoning

Taxation Ruling TR 97/11 at paragraph 13 states that the courts have held that the following indicators of the carrying on of a business are relevant to the determination of the question:

· whether the activity has a significant commercial purpose or character;

· whether the taxpayer has more than just an intention to engage in business;

· whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

· whether there is repetition and regularity of the activity;

· 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 the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

· the size, scale and permanency of the activity; and

· whether the activity is better described as a hobby, a form of recreation or a sporting activity.

The information you have provided in support of your view that you are carrying on a business of trading include the following:

· you state that the main purpose of your activity is profit making;

· you gained experience before you started your trading activity;

· you have academic qualifications and you apply that knowledge to the interpretation of financial accounts in your trading activity. In addition you state that you keep up to date by regularly doing research. You subscribe to free newsletters and attend seminars to increase your knowledge.

· you retain the statements of account as your record of your activity;

· there is repetition and regularity in your activity as you state that you purchase and sell each month;

Having examined the characteristics of your trading activity it is considered that your activity constitutes the carrying on of a business.

Question 2

Summary

As you are a resident of Australia and as business income is a form of ordinary income the operative provision to be considered is subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

In question 1 above the indicators of the carrying on of a business as set down in Taxation Ruling TR 97/11 were considered in an examination of your trading activity and it was determined that your activity constitutes the carrying on of a business.

The income derived from carrying on a business is income according to ordinary concepts and is therefore your assessable income as an Australian resident in terms of subsection 6-5(2) of the ITAA 1997.

Question 3

Summary

The question of a deduction for losses and outgoings from your trading falls for consideration under the general deduction provisions of section 8-1 of the ITAA 1997.

Detailed reasoning

In question 1 above the indicators of the carrying on of a business as set down in Taxation Ruling TR 97/11 were considered in an examination of your trading activity and it was determined that your activity constitutes the carrying on of a business.

Any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income is an allowable deduction in terms of paragraph 8-1(b) of the ITAA 1997. However such a deduction is subject to the restrictions of subsection 8-1(2) regarding capital expenditure; private or domestic expenditure; expenditure related to deriving exempt income or non-assessable non-exempt income; and expenditure that is not deductible under a provision of the ITAA 1997.

Therefore to the extent that the expenditure satisfies these provisions the losses and outgoings which you necessarily incur in your trading activity are allowable deductions.

Question 6

Summary

You were concerned about deducting the losses from your trading activity against your salary.

Detailed reasoning

In answer to question 3 above it was found that any loss or outgoing which you necessarily incur in your trading activity is an allowable deduction in terms of paragraph 8-1(b) of the ITAA 1997.

Such expenditure is deductible first against the income derived from your trading however where the expenditure exceeds the income from that source the excess deductions are deductible in terms of paragraph 8-1(a) of the ITAA 1997 against your other assessable income including your salary.

ATO view documents

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?

Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for differences

Does Part IVA, or any other anti-avoidance provision, apply to this ruling?

No.

Keywords

Business income

Carrying on a business

Current year losses

Deductions and expenses

Losses

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).