Edited version of your written advice

Authorisation Number: 1013058607105

Date of advice: 25 July 2016

Ruling

Subject: Am I in business - share trader

Question 1

For the years ended 30 June 200X to 30 June 20XX, were you carrying on a business of share trading?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 200X

Year ending 30 June 200X

Year ending 30 June 200X

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 200X

Relevant facts and circumstances

In the 200X-0X income year, you began creating a share portfolio for the purpose of buying and selling shares to make a profit.

You initially funded the shares with a capital injection which came from an insurance payout and when required you drew on a line of credit.

In the 200X-0X income year you encounter the severe market conditions of the beginning of the global financial crisis and could not see the market improving. At this time therefore you cashed out the majority of you shares.

From the 200X-0X, you resumed full time employment working minimum 40 hours a week.

You advised you spent approximately fifty hours a week on share trading, planning, research, record keeping, and decision-making in the 200X-0X and 200X-0X income years however that significantly decreased due to the global financial crisis.

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. However you hold one parcel of shares as a long term investment and have kept these shares separate from any other share activities.

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

You had the following share buy and sell transactions in the following years:

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

Taxation Ruling 97/11 (TR 97/11) provides guidance on the Commissioner's view about carrying on a business. While TR 97/11 is about carrying on a business of primary production, the principles are applied for all cases about the carrying on of a business. When considering the whether or not the buying and selling of shares is considered to be a business the following indicators are considered to be relevant: 

• The nature of the activities, particularly whether the potential for profit making;

• The repetition and regularity of the activities;

• Organisation in a business-like manner, including whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business and the use of a system or method; and

• The volume of the operations and the amount of capital employed.

In considering whether a person is carrying on a business, all of the above indicators must be weighed up. However, in doing so, equal weighting may not be given to each indicator. Whether a business is carried on depends on the general impression gained and whether it has a commercial flavour or character. The weighting given to each indicator may vary from case to case.

Applying the criteria to your circumstances

We have considered the relevant factors, as outlined above, when determining whether you were carrying on a business as a share trader during the income years 200X-0X to 20XX-XX and have determined that you were not carrying on a business as a share trader during the 200X-0X to 20XX-XX income years.

The factors, or indicators, that give the overall impression that you were not carrying on a business of share trading for the 200X-0X to 20XX-XX income year are:

• Your strategy was to make a profit through occasional trading, with some dividend income;

• You held shares in a small number of companies which does not support that you sought to maximise opportunities to make profits in relation to your share activities;

• You held your shares for significant periods of time, considered longer than a share trader generally would;

• Your activities did not demonstrate repetition and regularity in the buying and selling of shares in order to demonstrate that you were in business;

• The strategies you utilised could not be considered to be comparable as that of a share trader as opposed to that of a share investor;

• The volume of your share activities during the 200X-0X to 20XX-XX income years consisted of minimal sales and minimal purchases, and would not be the volume expected to be undertaken by a share trader;

• You did not have a business plan in relation to your share activities; and

• You did not carry on your share activities in a businesslike manner, that is, in a manner similar to that of the ordinary trader in that line of business. A share trader is expected to regularly take profits, either partially or in full, use methods such as fundamental or technical analysis, and have some sort of loss minimisation strategy.

In the weighing up of the relevant factors it is considered that you were not in business as a share trader for the 200X-0X, 200X-0X, and 200X-0X income years. The repetition and regularity of your share trades further declined in the 200X-0X to 20XX-XX income years, where you completed only 3 share sales over a five year period.

Your activity during the 200X-0X to 20XX-XX income years would be considered to be share investing. Your shares would be considered to be capital gains tax assets, and any gains or losses should be reported in your 200X-0X to 20XX-XX returns as capital gains and losses.

Note, a taxpayer's status can change from income year to income year, and also change within the same year depending on the taxpayer's circumstances.

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