Edited version of private ruling

Authorisation Number: 1011835983019

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Ruling

Subject: assessable income and trading proceeds

Question: Will the proceeds from the sale of a specified number of shares in the 2011-2 income year be assessable income?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You registered with an online provider, to enable you to purchase and sell shares as a share trader.

You will invest a sum of capital to purchase a specified number shares at a specified amount per share during the 2011-12 income year.

When the share price increases to a specified amount per share you will sell a specified number of shares, with total sales proceeds of $X.

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 70-5

Income Tax Assessment Act 1997 Section 70-10

Income Tax Assessment Act 1997 Section 70-15

Income Tax Assessment Act 1997 subsection 70-35(1)

Income Tax Assessment Act 1997 subsection 70-35(2)

Income Tax Assessment Act 1997 subsection 70-35(3)

Income Tax Assessment Act 1997 Section 70-45

Assumption:

You will value your stock at cost.

Reasons for decision

Your assessable income includes income according to ordinary concepts, which is called ordinary income. If you are an Australian resident, your assessable income includes the ordinary income you derive directly or indirectly from all sources, whether in or out of Australia during the income year.

In your circumstances, you are conducting the business of share trading and the income (sale of shares) you derive from your activities forms part of your assessable income.

Trading Stock

Trading stock includes anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business.

The purpose of income tax accounting for trading stock is to produce an overall result that (apart from small business concessions) properly reflects the activities with the trading stock of the business. There are three key features:

· you bring your gross outgoings and earnings to account, not your net profits and losses on disposal of trading stock;

· those outgoings and earnings are on revenue account and not capital account; and

· you must bring to account any difference between the value of your trading stock on hand at the start and at the end of each income year.

In your circumstances, your trading stock is the shares acquired through the course of your share trading business.

How to value trading stock

There are three ways to calculate the value of trading stock. These are:

1. cost;

2. market selling value; and

3. replacement value.

Calculating cost of good sold

The cost of goods sold is calculated by adding to the opening stock on hand at the start of the year, the cost of goods purchased and deducting from this total the closing stock on hand at the end of the year.

In your circumstances, your assessable income is your sales, from this you can deduct the cost of the goods sold (opening stock of nil plus purchases less closing stock).

Note: Generally unless an individual has substantial turnover of share they would be considered an investor and not a trader.