Edited version of private advice

Authorisation Number: 1051821831731

Date of advice: 29 March 2021

Ruling

Subject: Am I in Business

Question

Are you carrying on an options trading business?

Answer

Yes. Having regard to your circumstances and the relevant factors contained in Taxation Ruling TR 97/11 you are carrying on a business. Further information about carrying on a business can be found by searching 'QC 31733' on ato.gov.au

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You graduated with a Bachelor's degree in 20XX.

You graduated with a Master's degree in 20XX.

You obtained membership with a professional body in 20XX.

You started working in 20XX.

You were promoted in 20XX where you have been in charge of managing investments of a self-managed superannuation fund as part of managing a group of companies. This includes monitoring and managing investments in real estate, shares, commodities and managed funds.

You have been responsible seeking new investment opportunities for the superannuation fund and you have been actively studying and following international financial markets for value investments.

In order to safeguard investments, you started learning about trading index options as a hedging tool. Due to your background and experience, you were able to learn quickly through online resources. You completed every options course on the Australian Stock Exchange (ASX).

ASX offered an options trading game where you developed almost all of your practical learning as you were able to understand how the options are priced in the market and you were able to build your own spreadsheet for calculations and formulate a strategy.

You attended webinars that were focussed on picking directions in the market.

You learnt various charting techniques that helped pick the direction and timing of the market through various other webinars and Youtube.

Throughout your learning experience you understood that trading in index options could not only protect your investments but also could be used to create additional income for yourself and you developed an intention to carry on a business of options trading on a regular basis since 20XX.

Up until Month X 20XX you had a profit of X% from trading activities. Between Month X 20XX and Month X 20XX the stock market was behaving irrationally. As a result, your technical indicators were giving out false signals and you incurred steep losses.

You had to inject more capital than initially budgeted to cover losses, but your losses increased during this period until a point where you paused your trading activities until the markets stabilised.

The markets have since returned to normal levels.

For the Financial Year ended 30 June 20XX, you completed a number of buy transactions and a number of sell transactions, purchased a number of options contracts, sold a number of options contracts and deposited $X which resulted in a $X loss.

You utilise charting techniques, fundamental analysis on the local and international markets and monitor market news on several local and international news sources.

You spend on average at least a number of hours a day monitoring trades and researching the markets.

You have set up three screens with one of the screens constantly running. You also have phone apps with notifications for breaking news. You have the broker's app on your phone.

Your home study is set up with a laptop and screen with high speed National Broadband Network to ensure live streaming.

You are using up to $X a year in capital. Capital is sourced from personal savings and equity of $X is available.

Your average trade size is $X with major trades as high as $X when you are confident of directions based on technical and fundamental indicators.

You buy at least a number of contracts per trade.

In addition to broker reports you have an ongoing database of all your trades in a spreadsheet.

You created a calculator to assist you in deciding if an option is worth buying and provides you with insight as to your breakeven point, projected profits/losses, stop loss assessment and brokerage and fees before entering a trade.

You have separate tabs for each trade which are eventually linked to an overall trading summary page which contains further information.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

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