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Ruling
Subject: Ownership of trading activities
Question
Are the trading activities undertaken by your company to be treated as your activities?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commences on:
1 July 2009
Relevant facts and circumstances
Between 1 July 2009 and 30 June 2011 a business of share trading was carried on.
You are the director and sole share of a company.
In 2009 you sought to open a trading account with a trader for the purpose of carrying on a share trading business.
You found the application process for individuals more onerous and requiring greater financial security than the application process for a company. You procured from your company the services of opening an account with the trader. Your company opened a trading account with the electronic for you.
It was your intention that for all purposes following the procurement of the account by your company that the trading account would be your own.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 40-40,
Income Tax Assessment Act 1997 Section 6-5 and
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Summary
The trading activities of your company are not to be treated as the activities of the taxpayer.
Detailed reasoning
Generally the rule in relation to the ownership of capital gains tax (CGT) assets is that the owner holds the asset. This is illustrated by looking at the ownership of depreciating assets under section 40-40 of the Income tax Assessment Act 1997 (ITAA 1997). This section provides guidance in the form of a table to clarify the holder of a depreciating asset across a number of different scenarios. This states that any depreciating asset is held by the owner unless another item in the table applies to the circumstances of the ownership arrangement.
Whilst the shares in this case do not come under the capital allowances provisions of the ITAA 1997, it can be used as an indicator as to how ownership is established in relation to CGT assets.
Taxation Ruling TR 93/32 looks at rental properties and the division of net income or loss between co-owners. Although TR 93/32 looks at rental properties, the underlying principles can be applied to other income-producing assets such as shares and securities.
TR 93/32 states that net income or loss from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. Legal interest is determined by the legal title to a property.
TR 93/32 states that where the title deed of a rental property indicates sole ownership of the property, and the mortgage is held in joint names, the legal owner can claim the full amount of the interest paid. The fact that the other party to the mortgage may have paid some of the mortgage expenses is of no consequence for income tax purposes. The Australian Taxation Office treats the payment of the other party's share of the expense as no more than a loan from the other party to the taxpayer.
In applying the principles extracted from TR 93/32, the shares and securities are held by the company. Under section 6-5 of the ITAA 1997, all of the income earned from the income-producing assets will only be assessable to the company. The company will also be eligible for any deductions under section 8-1 of the ITAA 1997 in relation to the share trading activities along with any capital gains or capital loss that may be incurred during the trading.