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Edited version of your private ruling
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Ruling
Subject: Non-commercial losses
Question :
Will the Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to defer your losses from your share trading activities?
Answer:
No, as we do not consider you to be carrying on a business.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
You conduct share trading activities. You have provided details of your share trading transactions for the 2011-12 financial year.
You made a loss from your share trading activities in the 2011-12 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 35-10(1)
Income Tax Assessment Act 1997 subsection 35-10(2)
Income Tax Assessment Act 1997 subsection 35-10(2E)
Reasons for decision
There are two possible scenarios as to how the share trading activities can be treated for income tax purposes. These scenarios, and their consequences, are as follows:
(1) Carrying on a business
In this scenario, you would be a share trader, the shares would be regarded as trading stock and any income/losses would be included in your assessable income.
(2) Investment/Speculator
In this situation, you would be regarded as a share investor or speculator. The shares will be Capital Gains Tax (CGT) assets, any gains earned from the disposal of the shares would be income as a capital gain and any losses sustained from the disposals will be a capital loss. Any dividends and other similar receipts would be included in your assessable income.
Division 35 of the ITAA 1997 will only apply to defer losses if you are carrying on a business.
The question of whether a taxpayer is engaged in share trading as a business is essentially based on the facts the situation. The following aspects are generally considered:
· repetition and regularity in the buying and selling of shares;
· turnover;
· whether the taxpayer is operating to a plan, setting budgets and targets, keeping records;
· maintenance of an office;
· accounting for the share transactions on a gross receipts basis;
· whether the taxpayer is engaged in another full time occupation.
Based on the information you have provided we do not consider you to be carrying on a business of share trading. The repetition and regularity of your activities do not support the conclusion that you are in business. As such your losses are considered to be capital in nature and Division 35 of the ITAA 1997 does not apply.
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