Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012055450885

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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Subject: Am I in business as a share trader? - shares

Question: Were you carrying on a business of trading in shares during the 2010-11 income year?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You and your spouse use your combined finances to purchase and sell Australian listed shares.

For the income year ending 30 June 2010, and prior income years, you included dividend income and capital gains from your share activities as a share investor in your income tax returns.

During the 2010-11 income year you did not invest any new investment funds into your share activities, but sold a number of shares that had been acquired in a previous income year. You conducted almost daily transactions during one month when selling a large parcel of shares to avoid flooding the market. You reinvested the proceeds from the disposal of your shares.

Your intention in relation to your share activities is to earn income in the form of dividends and to hold the investments for longer periods to obtain capital growth.

You did not have the intention to engage in trade and your share activities are not conducted when opportunities arise based on your feelings at any given time.

You acquire shares that provide higher dividends and have the potential for capital growth, with the intention to hold the shares as long as the dividend yield is high and/or the potential for capital growth remains strong.

You dispose of your shares when their dividend yield and/or potential capital growth falls, or there have been changes in the underlying management of the company which reduces your confidence that the dividend yields and capital growth in that company will not meet your expectations.

You generally hold the shares as long term investments for periods greater than twelve months. When conditions affecting the underlying company and share values occur, you sell your shares regardless of whether a gain or loss will arise. Turnover of specific share is low due to their nature of long term investments.

Your share activities are not complex and do not involve a significant amount of daily management with you spending three to five hours per week on average on your share activities.

You conduct your share activities from your home and use the services of two on-line brokers.

You do not maintain any spreadsheets, register or tracking system, or use any accounting programs for your share activities.

You do not account for your share transactions on a gross receipts basis.

You do not subscribe to any research facilities in relation to your share activities.

You do not have a business or investment plan or strategy in relation to your share activities and do not set budgets or targets.

You have invested large amounts of capital on your share activities.

You and your spouse operate a registered business not related to your share activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

There are two possible scenarios as to how share trading activities can be treated for income tax purposes. These scenarios, and their consequences, are as follows:

'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'.

Whether a share trading activity is carried on as a business is a question of fact.

Taxation Ruling 97/11 (TR 97/11) outlines the Commissioner's view about the carrying on a business. Whilst this ruling deals primarily with the issue of carrying on a business in primary productions, the courts have determined that factors included in this ruling are also significant when determining whether a business is being carried on.

Case law has determined certain factors as being relevant in making this decision and concluded that no one factor is determinative, it is the overall impression gained

In Case X86 90 ATC 621; AAT Case 6297 (1990) 21 ATR 3747 and more recently in Shields v DFC of T (Cth) 99 ATC 2037; (1999) 41 ATR 1042 and Smith v FC of T 2010 ATC 10-146 the following were stated as factors to be considered;  

and more particularly in respect of share traders,

Applying the factors to your circumstances

We have considered the relevant factors, as outlined above, when determining whether you were carrying on a business as a share trader during the 2010-11 income year.

After reviewing the facts of your situation, and applying the factors to your circumstances it has been determined that the overall impression is that you were a share investor during the income year ended 30 June 2011 because:

Therefore, any gain or loss made from your share activities in the 2010-11 income year will be covered by the capital gains tax provisions under under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997).


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).