Edited version of your written advice

Authorisation Number: 1013049177410

Date of advice: 14 July 2016

Ruling

Subject: Am I in business - Share trader

Question 1

For the year ended 30 June 2015, were you carrying on a business of share trading?

Answer

No

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Prior to 1 July 20XX you held shares on capital account and stated that you considered yourself an investor rather than a share trader.

During the 20XX-YY financial year, you bought and sold shares with the intent of building an income stream to replace your income.

You funded the shares from your salary and drawing on your savings.

You work full time as a salary and wage earner however you are aware this job would come to an end in the 20YY-ZZ financial year.

You advised you spent approximately ten hours a week on share trading, planning, research, record keeping, and decision-making.

You have no written business plan; however your plan is based on researching companies that show potential for growth and to trade to achieve profitable opportunities and earn profits from buying shares at a lower price and selling the shares at a higher price.

You subscribed to multiple financial analysis publications.

You have a dedicated area of your home from which your conduct your activities.

You did not purchase shares as long term investments.

You did not purchase shares for the purpose of earning dividends.

You had the following share buy and sell transactions in the 20XX-YY year:

You held shares on average for 130 days.

You have made a loss for the 20XX-YY financial year.

You have included a copy of the following documents which are to be read with and form part of the scheme for the purpose of this private binding ruling:

• Schedule of Share Trading Activity for the year ended 30 June 20YY (excel document)

• CommSec statement for the period 1 July 20XX to 30 June 20YY.

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 995-1

Income Tax Assessment Act 1997, Section 35-10

Income Tax Assessment Act 1997, Section 35-30

Reasons for decision

Am I in business as a share trader

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:

(1) Business Income 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.

'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. 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. A series of indicators to determine the matter, these indicators are summarised in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production.

Applying the criteria to your circumstances

For the year ended 30 June 20YY it has been determined that you were not carrying on a business of share trading.

The factors or indicators that give the overall impression that you were not carrying on a business of trading in shares for the year ended 30 June 20YY are as follows:

• There were a small number of trades for the year, only 15 buys and 19 sells.

• The majority of your purchased were within the first few months of the financial year and the majority of your sales occurred in the months of January 20YY and June 20YY.

• The manner in which you traded shares did not show regularity, a routine, or a system.

• The following table for the calendar months in the year ended 30 June 20YY shows that there was not a discernible pattern of trading, in fact in four months there was no trading at all.

• You do not have a written business plan, although you have stated that your plan is based on researching companies that show potential for growth, and buy shares at a low price and sell at a higher price. This plan does not show the sophistication of s share trader and does not discuss loss mitigation strategies

Your share transactions do not show the required repetition, regularity, scale required to be considered to be a business. Your activities are also not conducted with the level of sophistication that would be expected from a business of share trading.

As a result, for the year ended 30 June 20YY, your share buying and selling activity is indicative of a share investor and should be returned on capital account.

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