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Ruling

Subject: Am in business as an exchange traded option trader?

Question

Are you carrying on a business of trading Exchange Traded Options?

Answer

Yes.

This ruling applies for the following periods:

1 July 2012 to 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

In recent years you have been trading exchange traded options (ETO's) on the Australian stock exchange.

In recent consecutive income years you have derived substantial profits from your trading activities.

Typically you conduct around 200 trades per year.

You devote time daily to your trading activities.

Your trading activities have a profit making motive.

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 6-5 and

Income Tax Assessment Act 1997, Section 8-1

Reasons for decision

Where an individual is carrying on a business of trading in ETO's, the premiums received from that activity are assessable income under section 6-5 of the Income Tax Assessment Act 1997

(ITAA 1997), while premiums payable from the activity are deductible under section 8-1 of the ITAA 1997.

Whether or not a person is carrying on a business is a question of fact. The determination of whether or not a business is being carried on is generally a process of weighing all the relevant indicators. No one indictor determines whether or not a business is being carried on.

Taxation Ruling TR 97/11 income Tax: am I carrying on a business of primary production
(TR 97/11) lists the following indicators which suggest a business is being carried on:

§ Whether the activity has a significant commercial purpose or character,

§ Whether the taxpayer has more than an intention to engage in business,

§ Whether a taxpayer has a purpose of profit as well as a prospect of profit from the activity,

§ Whether there is repetition and regularity of the activity,

§ Whether the activity is of the same kind that is carried on in a similar manner to that of the ordinary trade in that line of business,

§ Whether the activity is planned, organised and carried out in a business like manner,

§ The size, scale and permanency of the activity,

§ Whether the activity is better describer as a hobby, a form of recreation or a sporting activity.

In your case;

§ Trading ETO's is an activity that is inherently commercial in character,

§ You have more than an intention to engage in business, and have been engaged in your trading activities for several years,

§ You have a profit purpose and have made profits from your trading,

§ You have repetition and regularity in that you have conducted around 200 trades per year over the last several years,

§ Your trading activities have been conducted continuously over the last several years, indicating that your trading activities exhibit permanency,

§ Your trading activities would not be better described as a hobby, form of recreation or a sporting activity.

The overall impression gained is that you are in the business of trading ETO's. Consequently, your income is assessable as ordinary income and is assessable under Section 6-5 of the ITAA 1997, while your deductions are allowable under Section 8-1 of the ITAA 1997.