Edited version of private ruling

Authorisation Number: 1011668081964

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Ruling

Subject: Am I a share trader

Are you carrying on a business of share trading?

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a self-employed.

You utilise your office space for your usual profession and your home office for your share activities. The home office is not used exclusively for your share activities.

You conducted analysis of the market including the use of a software program, Doc Doctor. You maintain awareness of the share market, finance and commodity news and events.

You attend seminars relevant to share activities.

Your portfolio consists of blue chip, second and third tier stocks and speculative coal and gas interests.

You maintain accounting records of your share activities.

You assert you have a detailed trading plan. Your objectives are to identify the market trend and take on a trading position to enable you to make a profit by holding the stock for a period of time. Your intention is to hold shares for long term gain including dividends, income and growth.

A portion of your transactions are through a Share Purchase Plan, allowing you to buy additional shares at a price lower than the market price. Your strategy was to utilise this facility and then sell existing shares on the market at a profit.

You hold stocks for a minimum period of several weeks and could dispose of stocks within 12 months of acquisition depending on the market performance.

You traded on an irregular basis making 56 transactions, 46 buying and 10 selling in 2008-09, 2009-10 and 2010-11 financial years. The majority of transactions were conducted online through an online broker.

You have not provided detailed trading statements of your share activities. However, you assert your share activities in 2009 consisted of one buy transaction of less than $5,000. In 2010, you acquired shares through 35 buy transactions with an average value of less than $10,000 and disposed of shares through five sell transactions with an average value of less than $5,000. In the 2010-11 financial year, you acquired shares through 10 buy transactions with an average value of less than $10,000 and disposed of shares through five sell transactions with an average value of less than $10,000. Your portfolio value is less than $500,000.

You do not have a business banking account to separate your share activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

In order to determine if you are carrying on a business, the term 'Business' is defined as 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

The business indicators were applied in Shields v. Deputy Commissioner of Taxation [1999] AATA 4; 99 ATC 2037; (1999) 41 ATR 1042. Block J said:

· the nature of the activities and whether they have the purpose of profit-making

· the complexity and magnitude of the undertaking

· an intention to engage in trade regularly, routinely or systematically

· operating in a business-like manner and the degree of sophistication involved

· whether any profit or loss is regarded as arising from a discernible pattern of trading

· the volume of the taxpayer's operation and the amount of capital employed, and more particularly in respect of the activity

· repetition and regularity in the buying and selling of stock

· turnover

· whether the taxpayer is operating to a plan, setting budgets and targets, keeping records

· maintenance of an office

· accounting for the share transactions on a gross receipts basis, and

· whether the taxpayer is engaged in another full time occupation.

Two cases provide examples of the application of these factors by the Administrative Appeals Tribunal (AAT).

In Case W8 89 ATC 171; AAT Case 4847 (1988) 20 ATR 3182 a trainee accountant purchased 20 parcels of shares between April 1986 and February 1987. All the shares were sold between September 1986 and April 1987, no share having been held for more than five months. A small loss made on four parcels was claimed as a deduction. The AAT held that the shares were purchased as trading stock during the 1987 year. As the shares were bought and sold repeatedly with a view to making a profit and all shares were sold within a year of acquisition, the person was in the business of share trading.

In contrast to that decision, Case X86 90 ATC 621; AAT Case 6297 (1990) 21 ATR 3747, disallowed losses on two parcels of shares sold after the 1987 stock market crash. Instead, the losses were quarantined under the capital gains provisions of the Act. It was found that there was a lack of sophisticated share trading techniques, business plan, market research in shares invested, contingency plan in falling market or large number of transactions, such that the applicant's activities did not exhibit a system of operation of a business in share trading. The applicant had only a limited contact with the share market, which he then entered for the purpose of making quick profits by generally buying and selling speculative mining shares. The applicant was not engaged in a business of share trading but rather that he was a speculator in the share market.

In your case, you have invested a reasonable amount of capital in the activity with your portfolio totalling under $500,000. You have a business plan that defines your intention to hold shares for long term gain through dividends, income and growth rather than making profit from short term activities.

Your buying and selling strategy relies on your research and analysis of the share market, finance and commodity news and events and knowledge obtained through Seminars. The holding periods of the shares varies between several weeks and 12 months.

You have an established office where you conduct your usual business activities as a systems consultant. You utilise this space to undertake your share activities. You are able to conduct these activities in your a home office however, it is not an area set aside to undertake your share activities independent to your use of the space for other activities.

You maintain records of your activities and have advised you do so as a share holder rather than that of a share trader.

You are self-employed and dedicate time to your share activities dependant on the performance of your stocks and in an undefined manner.

Your share activities for the 2008-09, 2009-10 and current 2010-11 financial years total 56 transactions with a total. Your share activities in 2009 consisted of a less than $5,000 purchase and no disposal. In 2010,you acquired shares through 35 buy transactions with an average value of less than $10,000 and disposed of shares through five sell transactions with an average value of less than $5,000. In the 2010-11 financial year, you acquired shares through 10 buy transactions with an average value of less than $10,000 and disposed of shares through five sell transactions with an average value of less than $10,000. Your transaction history indicates your share activities are not regular, routine, systematic or repetitive rather that they demonstrate characteristics of a share holder rather than that of a share trader.

After weighing up the all the factors and the circumstances surrounding your buying and selling of shares, the Commissioner considers you were not carrying on a business for the purpose of profit making during the period you were engaged in this activity. Your share activities are characteristically that of a share holder.