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Edited version of your private ruling
Authorisation Number: 1012450427502
Ruling
Subject: Deductibility of share trading expenses
Question 1
Are you entitled to claim a deduction for brokerage fees and GST incurred on the acquisition of shares under section 8-1 of the Income Tax Assessment Act 1997?
Answer
No
This ruling applies for the following periods:
1 July 2012 - 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
· You bought shares in the relevant income year.
· On acquisition of the shares you incurred brokerage fees and GST.
· You are not registered for GST.
· You do not carry on a share-trading business and the shares were bought as a once-off investment.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 103-30
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 110-25
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states:
You can deduct from your assessable income any loss or outgoing to the extent that:
(a) It is incurred in gaining or producing your assessable income; or
(b) It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) It is a loss or outgoing of capital, or of a capital nature; or
(b) It is a loss or outgoing of a private or domestic nature; or
(c) It is incurred in relation to gaining or producing exempt income; or
(d) A provision of this Act prevents you from deducting it.
An expense is deductible under this section it fits into one of the positive limbs in subsection 8-1(1) of the ITAA 1997. However, subsection 8-1(2) of the ITAA 1997 will preclude deductibility if the expenditure that has been incurred fits into one of the negative limbs listed in that section.
You are seeking to claim a deduction on brokerage fees and GST incurred on the purchase of shares. The deductibility of these expenses will be affected by whether you are considered to carry on a business of share-trading.
Whether or not a person is carrying on a business is a question of fact. Taxation Ruling TR 97/11Income tax: am I carrying on a business of primary production lists the following indicators as relevant in determining if a business is being carried on:
· Whether the activity has a significant commercial purpose or character,
· Whether the taxpayer has more than an intention to engage business,
· Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity
· Whether the there is repetition and regularity of the activity,
· Wether the activity is of the same kind that is 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 out n a business like manner
· He size, scale and permanency of the activity,
· Whether the activity is better described as a hobby, a form or recreation or a sporting activity.
You have indicated you do not carry on a business of share trading and the purchase of these shares was a once off investment. In this situation you do not display any of the characteristics of carrying on a business of share trading and your share activity would be regarded as investing. Therefore, the brokerage fees and GST incurred on the acquisition of the shares are not deductible under section 8-1 of the ITAA 1997.
Your shares are considered to be capital assets. Disposal of capital assets are subject to the Capital Gains Tax (CGT) provisions contained in Part 3-1 of the ITAA 1997. If you disposed of your shares, a capital gain or capital loss will result. You work this out according to section 104-10 of the ITAA 1997.
It is in working out your capital gain or loss that you would include the costs of brokerage and GST.
These are elements that make up the cost to acquire the shares and are to be included in the cost base (or reduced cost base) of the asset according to section 110-25 of the ITAA 1997.
Section 103-30 of the ITAA 1997 requires an entity to reduce the cost base and reduced cost base of a CGT asset by the amount of any related net input tax credit of the entity. As you are not registered for GST you would not have claimed any input tax credits. Therefore, the whole amount of GST incurred will be included in the cost base and reduced cost base of the shares when you dispose of the asset.
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