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Edited version of your private ruling
Authorisation Number: 1012449490219
Ruling
Subject: Loss on shares
Question
Can your loss from an investment in a foreign company be a revenue loss and be used to offset other income in your Family Trust?
Answer
No
This ruling applies for the following period
Year ended 30 June 2012
The scheme commences on
1 July 2011
Relevant facts and circumstances
You acquired shares in a foreign company, which conducted an existing business. The operation did proceed as smoothly as predicted and you agreed to sell and transfer shares back to the business for nil consideration.
You did not carry on a business of share trading.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 102-10
Reasons for decision
Tax treatment of share losses
A loss from shares can be accounted for in three ways:
1. As a revenue loss, from carrying on a business of share trading, under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
2. As a capital gains tax (CGT) loss, from investment activity, under the CGT provisions in Part 3-1 of the ITAA 1997.
3. As a CGT loss, from speculation, under the CGT provisions in Part 3-1 of the ITAA 1997.
In your case, you were not a share trader and therefore the loss you made from the share transaction cannot be a revenue loss. We consider you were a share investor because you made an investment in an established business model and you did not buy and sell shares in the manner of a share trader. It follows your loss on your investment will be a CGT loss.