Edited version of your private ruling

Authorisation Number: 1012450860556

Ruling

Subject: Am I in business

Question 1

Will the Taxpayer be considered to be in the business of trading and as such the Taxpayer's income received from that activity be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and any losses from the activity be deductible under section 8-1 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2013.

The scheme commences on:

April 2013.

Relevant facts and circumstances

The Taxpayer plans to commence business in trading.

The Taxpayer provided the following information to demonstrate the planned business is seriously contemplated:

1. I have an extensive business plan with a market review, strategy review, budget management and personnel planning, risk analysis, cash flow analysis and profit and loss forecasting.
2. I have several years of experience at major high frequency trading firms. I have multiple degrees and have postgraduate research papers on complicated financial topics.
3. Initial Capital investment is $X. I plan to allocate more capital in the future as necessary.
4. I have done hundreds of hours of research, planning and back testing of this strategy.
5. I budget to make $Y per month from this strategy.
6. I plan to spend Z hours per week executing this strategy.

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 995-1.

Reasons for decision

Where a Taxpayer is carrying on a business of trading, the income received from that activity is assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), while the losses from the activity are deductible under section 8-1 of the ITAA 1997.

Whether or not a Taxpayer 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.

'Business' is defined in section 995-1 of the ITAA 1997 as 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

In Federal Commissioner of Taxation of T v. Radnor Pty Ltd (1991) 22 ATR 344; 91 ATC 4689, Hill J stated 'Ultimately, the question of whether the respondent was carrying on a business of dealing in shares is a question of fact and degree, a question of impression.'

Whether an activity is carried on as a business is a question of fact. This matter has been addressed in a number of court cases. The Commissioner's view is found in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production and provides guidelines, based on past cases, on determining whether a business is being carried on. While TR 97/11 is about carrying on a business of primary production, the indicators in that ruling which have been developed by the courts of law are used for all cases about the carrying on of a business. Paragraph 18 of TR 97/11 lists the following indicators:

· a significant commercial activity;

· the taxpayer has more than an intention to engage in business;

· a purpose and intention of profit from the activity;

· repetition and regularity of the activity;

· the activity is carried on in a similar manner to that of the ordinary trade in that line of business;

· the activity is planned, organised and carried on in a business like manner;

· size, and scale of the activity;

· not a hobby, recreation or a sporting activity;

· a business plan exists;

· the taxpayer has knowledge or skill.

In FC of T v. Shields [1999] FCA 1077; (1999) 42 ATR 504; 99 ATC 4783 (Shield's Case) the Federal Court upheld the Tribunal's decision that the taxpayer's share arbitrage activities constituted carrying on a business of share trading, even though he was also engaged in another full-time occupation.

The taxpayer in Shield's Case was employed full time with the AMP Society as a senior client services manager. His many years of experience in finance and investments brought to his arbitrage operations skill and care. The Tribunal considered that having regard to time, expertise and capital involved, the taxpayer was actively involved in transactions which were organised and carried out so far as possible to minimise the risks involved, and concluded that there was indeed a business

The Taxpayer has created a business plan which contains market review, strategy review, budget management and personnel planning, risk analysis, cash flow analysis and profit and loss forecasting. The Taxpayer has various degrees and has postgraduate research papers on financial topics. Initially the Taxpayer will invest $X in the business. The Taxpayer has done many hours of research, planning and back testing of the planned strategy. The Taxpayer plans to devote Z hours per week on the business and estimates he will make $Y per month from the strategy.

From this information provided by the Taxpayer it indicates that;

· The Taxpayer has more than an intention to engage in business;

· The Taxpayer has developed an extensive business plan;

· The Taxpayer has a purpose of profit from the trading;

· The Taxpayer's trading activities have been planned, organised and will be carried out in a business like manner;

· The Taxpayer's trading activities would not be better described as a hobby, form of recreation or a sporting activity;

· The Taxpayer has several years of experience in major trading firms and has various degrees and has postgraduate research papers on financial topics, so has the knowledge and skill.

As with the Shield's Case, the experience held by the Taxpayer in finance and investment will bring to the trading operations skill and care. In regard to the time dedicated to researching, planning and testing in preparation of the trading, this clearly indicates the business is seriously contemplated.

It is therefore concluded that the Taxpayer will be in the business of trading and as a consequence, the Taxpayer's income will be assessable as ordinary income and assessable under Section 6-5 of the ITAA 1997, and losses from the activity will be deductions allowable under Section 8-1 of the ITAA 1997.