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Edited version of your private ruling

Authorisation Number: 1012418130984

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Ruling

Subject: Am I in business? share trader

Question 1

For the year were you carrying on a business of share trading contracts for difference (CFD's) in foreign exchange (forex) and forex options?

Answer

Yes.

Question 2

Do you pass the non-commercial business loss rules (assessable income test) so that you can offset your business loss against your other income such as wages in the current year?

Answer

No.

Question 3

Will the amount incurred by you for the share trading course form part of your deferred non-commercial business loss?

Answer

No.

Question 4

Will the amounts incurred by you for undertaking a number of share trading courses form a part of your deferred non-commercial business loss?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You commenced trading activities. The trading activities consisted of the following:

You have undertaken frequent trades since commencing your business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Section 8-1,

Income Tax Assessment Act 1997 Section 15-15,

Income Tax Assessment Act 1997 Section 25-40,

Income Tax Assessment Act 1997 Division 35,

Income Tax Assessment Act 1997 Section 35-5,

Income Tax Assessment Act 1997 Section 35-10,

Income Tax Assessment Act 1997 Section 35-30,

Income Tax Assessment Act 1997 Section 36-10 ,

Income Tax Assessment Act 1997 Section 36-15,

Income Tax Assessment Act 1997 Section 118-20 and

Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision

Question 1

Summary

For the current year you are carrying on a business of trading contracts for difference (CFD's) in forex and forex options.

Detailed reasoning

Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for difference (TR 2005/15) outlines the taxation treatment of CFD's. A CFD is a form of cash settled derivative that allows investors to take risks on movements in the price of a subject matter (the 'underlying') without ownership of the underlying.

TR 2005/15 states where this type of trading is part of the carrying on of a business, the gains from the transactions will be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and the losses will be deductible under section 8-1 of the ITAA 1997.

TR 2005/15 also states that, if the trading activities constitute the carrying out of a profit making undertaking or plan, but do not constitute a business, the net gain or net loss from trading will be assessable under section 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997) or deductible under section 25-40 of the ITAA 1997.

Section 15-15 of the ITAA 1997 does not apply to a profit that is assessable as ordinary income under section 6-5 of the ITAA 1997. Section 25-40 of the ITAA 1997 does not apply to a loss arising from a profit making undertaking or plan unless any profit from that plan would have been included in your assessable income under section 15-15 of the ITAA 1997.

Whether or not particular activities constitute a business is a question of fact and degree. A process is undertaken where all the facts of a situation are applied to the relevant indicators, taking into account the weight and influence of the facts within the context of that particular situation.

The Commissioner's view about carrying on a business is found in Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production (TR 97/11). The ruling lists the following indicators as being relevant when determining whether or not a business is being carried on:

In your case we consider you were carrying on business of CFD trading for the following reasons:

To conclude, you are considered to have been carrying on a business of CFD trading.

Question 2

Summary

You do not pass the non-commercial business loss rules (assessable income test) allowing you to offset your business loss against your other income such as wages in the income year.

Detailed reasoning

As it has been determined that you are carrying on a business in CFD trading, the income from the activities is assessable under section 6-5 of the ITAA 1997 and losses are deductible under section 8-1 of the ITAA 1997. It follows that sections 15-15 and 25-40 of the ITAA 1997 do not apply to your situation. Furthermore, because you were carrying on a business, the non-commercial loss rules in Division 35 of the ITAA 1997 must be considered in relation to your circumstances.

You satisfy the income requirement as your income for non-commercial loss purposes was less than $250,000.

However, you do not satisfy of the assessable income test. Your assessable income from CFD trading was less than $20,000. Therefore, you do not satisfy the assessable income test. Accordingly, your loss is deferred and carried forward to the following year, if you make a gain from CFD trading in that year, the carried forward loss can be used to offset the gain.

Question 3

Summary

The amount incurred by you for the share trading course earlier in the period will not form part of your deferred non-commercial business loss.

Detailed reasoning

Taxation Ruling TR 98/9 Income tax: deductibility of self education expenses incurred by an employee or a person in business (TR 98/9) addresses the deductibility of self education expenses incurred by an employee or a person in business, paragraph 15 states that "the fact the study will enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment) is not a sufficient basis in itself for self education expenses to be deductible. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income."

As you undertook a course in prior to commencing, the expense is considered to be incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. As a result, the amount incurred in undertaking the course will not form a part of your deferred non-commercial business loss.

Question 4

Summary

Some amounts incurred by you for undertaking some share trading courses, form a part of your deferred non-commercial business loss.

Reasons for decision

Paragraphs 12 to 14 of TR 98/9 Address the deductibility of self education expenses incurred by an employee or a person in business. It states "Self education expenses are deductible under Section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income earning activities.

If a taxpayer's income earning activities are based on the exercise of a skill or some specific knowledge and the subject of self education enables the taxpayer to maintain or improve that skill or knowledge, the self education expenses are allowable as a deduction.

If the study of a subject of self education objectively leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income-earning activities in the future, the self education expenses are allowable as a deduction."

As the courses you undertook are likely to lead to an increase in your income earning activities, the courses will form a part of your of your deferred non-commercial business loss.


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