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Ruling

Subject: Carrying on a business and deduction for personal superannuation contributions

Question:

Were you carrying on a business as a share trader for a two month period in the 2011-12 income year?

Answer:

No.

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are currently over 65 years of age.

You state that you are a self funded retiree.

In the 2011-12 income year you commenced a series of transactions where you bought and sold shares.

You provided a summary of share transactions made by you during a two month period in the 2011-12 income year.

Your business plan was to trade shares which have share values that widely fluctuate.

You have a margin lending facility so as to keep your share purchases for short term holdings separate from your long term share holdings.

To help with your share decisions you purchased newspapers daily. You also read online newspapers from Australian capital cities.

You spend a couple of hours per day researching the share market, and also monitor the All Ordinaries and the SPI indices at various times throughout the day.

You are in receipt of a part pension from Centrelink.

You made personal superannuation contributions to your superannuation fund (the Fund) in the 2011-12 income year.

A valid notice under section 290-170 of the Income Tax Assessment Act 1997 was made to the trustee of the Fund for the personal superannuation contributions made in the 2011-12 income year and an acknowledgment of that notice was received from the trustee of the Fund.

You confirm that the proposed deduction for personal superannuation contributions will not add to or create a loss.

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 6-5

Income Tax Assessment Act 1997, Section 8-1

Income Tax Assessment Act 1997 Subsection 26-55(2).

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Section 290-155.

Income Tax Assessment Act 1997 Section 290-160.

Income Tax Assessment Act 1997 Section 290-165.

Income Tax Assessment Act 1997 Subsection 290-165(2).

Income Tax Assessment Act 1997 Section 290-170.

Superannuation Guarantee (Administration) Act 1992 Subsection 12(11).

Income Tax (Transitional Provisions) Act 1997 Subsection 292-20(2).

Reasons for decision

Summary of decision

Your activities in relation to buying and selling shares do not amount to you carrying on a business of share trading.

Detailed reasoning

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 up all the relevant indicators within the context of a particular set of circumstances. No one indictor determines whether or not a business is being carried on, and the weight given to each indicator may vary from case to case.

Taxation Ruling TR 97/11 entitled 'Income Tax: am I carrying on a business of primary production' lists the following indicators as relevant in determining if 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 described as a hobby, a form of recreation or a sporting activity.

In your case:

The buying and selling of shares is an activity that has a commercial purpose or character, and the value of your trades is of a significant amount.

You had more than an intention to engage in business, and did buy and sell shares on a number of occasions.

Your share purchases and sales did have the prospect of profit, however your intention in engaging in this activity is not clear.

You demonstrated some repetition and regularity in your activity. However the level of activity is not considered to represent a level of trading that is indicative that a business of share trading is being carried on.

Looking at your pattern of share purchases and sales the following is observed:

Your transaction pattern of shows that you bought a single tranche of shares, held these shares for a short period, then sold the shares before buying further tranches. A share trader would not usually put all of their available capital into a single shareholding in this way, as it limits their ability to be flexible, or take advantage of market fluctuations.

You are also buying shares almost solely in a very limited number of companies. These companies are blue chip, stable companies, and would not generally lend themselves to a share trader's strategy of realising short term capital gains, while minimising losses through early selling.

You have taken short term capital gains and minimised losses through early selling. However, you have chosen to trade in stocks that are not speculative or volatile. Your gains and losses on each trade are very conservative and small in relation to the amount of capital invested. It is unlikely that a share trader would be operating on such conservative margins.

Although you have short holding periods, overall your pattern of share purchases and sales are not being conducted in a manner that is similar to the usual way that a share trader would conduct their business.

You have excellent records of your share buying and selling activities, and your activities appear to be well planned out and organised.

The values of your transactions do exhibit a commercial scale.

The buying and selling of shares is an activity that is inherently commercial in nature, which precludes the activity being considered to be a hobby.

Your activity of buying and selling shares did exhibit some characteristics of carrying on a business as a share trader. These include having a business plan, transacting in sizeable parcels and keeping excellent records. However, you lack repetition and regularity in buying and selling shares and your pattern of activity was not conducted in a similar way to that of a share trader.

Therefore, your activities in relation to buying and selling shares during the relevant period do not amount to you carrying on a business of share trading.