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Edited version of your written advice
Authorisation Number: 1012695338055
The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.
The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.
Ruling
Subject: Binary option trading
Question
Is a loss sustained from your trading deductible under section 25-40 of the income Tax assessment Act 1997 (ITAA 1997) against your other income?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts and circumstances
You were trading approximately 20 hours per week and made a loss.
You deposit money into the trading account from your VISA card with an interest rate of 18%.
You have completed a trading course and have software that assists you in making transaction decisions and have made X transactions.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 15-5
Income Tax Assessment Act 1997 section 25-40
Reasons for decision
Section 6-5 of the ITAA 1997 states:
that your assessable income includes income according to ordinary concepts, which is called ordinary income.
Profit or gain arising from an isolated business or commercial transaction will generally be ordinary income if the taxpayer's purpose in entering into the transaction was to make a profit. This would be the case even if the transaction was not part of the taxpayer's ordinary course of business.
The High Court held in Federal Commissioner of Taxation v. The Myer Emporium Ltd (1987) 163 CLR 199 at 209-210; 18 ATR 693; 87 ATC 4363 (Myer), that:
The authorities establish that a profit or gain so made [in an isolated transaction] will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit-making by the means giving rise to the profit.
Taxation Ruling 92/4 Income tax: whether losses on isolated transactions are deductible (TR 92/4) provides the ATO view on whether losses on isolated transactions are deductible.
The following paragraphs of TR 92/4 state:
7. For a loss to be incurred in gaining or producing the assessable income 'it is both sufficient and necessary that the occasion of the loss ... be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income' ( Ronpibon Tin N.L. and Tongkah Compound N.L. v. FC of T (1949) 78 CLR 47 at 57; Fletcher & Ors v. FC of T 91 ATC 4950 at 4957; (1991) 22 ATR 613 at 622).
8. If an isolated transaction results in a loss, that transaction has not produced, and will not produce, a profit which is income. Nevertheless, that loss may fall within the first limb of subsection 51(1) if, in entering that transaction, the taxpayer intended or expected to derive a profit which would have been assessable income.
Paragraph 16 of TR 92/4 states that:
Consequently, a loss from an isolated transaction is generally deductible under subsection 51(1) if:
(a) in entering into the transaction the taxpayer intended or expected to derive a profit which would have been assessable income; and
(b) the transaction was entered into, and the loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.
Trading is seen as commercial transactions, this combined with the fact that you had a profit making purpose, means that your losses from the activity in the year ended 30 June 2014 are deductible under section 25-40 of the ITAA 1997 as losses from profit making undertaking or plan.
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