Edited version of your written advice

Authorisation Number: 1012905895614

Date of advice: 5 November 2015

Ruling

Subject: Am In in business

Question 1

Were you carrying on a business of share trading during the income year ended 30 June 2014?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have been buying and selling shares for a number of years.

On 1 July 20XX you owned shares with a market value of $XXX,XXX.

During the relevant financial year, you made purchases with a total purchase value of $XXX,XXX. You sold shares with a total sale value of $XXX,XXX.

You have a closing balance as at 30 June 20YY of $XXX,XXX.

You do not have a business plan.

You do not maintain an office, you trade wherever is convenient.

You do not obtain professional advice in relation to the share transfers. You read the Australian Financial Review and the commercial press.

You spend approximately one hour per week on the share trading activities.

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 102-5.

Income Tax Assessment Act 1997 Section 102-10.

Reasons for decision

Summary

You are considered to have carried on a business of share trading during the relevant year.

Detailed reasoning

The question of whether a business is being carried on is a question of fact and degree and is determined on a year by year basis. If your activities do not amount to the carrying on of a business in one income year, that will not prevent them doing so in a later income year. Similarly, when the extent of an activity falls below what is required for that activity to be commercially viable, the activity may no longer constitute the carrying on of a business.

Generally, where you carry out business activities for the purpose of earning income from buying and selling shares you are considered to be a share trader. Your shares are treated as trading stock with the income from your sales included in your assessable income under section 6-5 of the ITAA 1997 (Income Tax Assessment Act 1997 (ITAA 1997)), and the expenses incurred to acquire the shares deductible under section 8-1 of the ITAA 1997. Other expenses incurred in the course of carrying on the business would also be deductible under relevant provisions of the Income Tax Assessment Act 1936 or the ITAA 1997.

However, if you hold your shares for the purpose of earning income from dividends and capital growth, you will be regarded as a share investor. Your shares would be treated as capital gains tax (CGT) assets with any gains from the disposal of the shares included in your assessable income as a capital gain (section 102-5 of the ITAA 1997) and any losses sustained from the disposals would be capital losses (section 102-10 of the ITAA 1997).

Taxation Ruling TR 97/11 (Income Tax: am I carrying on a business of primary production?) provides a guide to the indicators that the courts have held to be relevant as to whether or not a person is carrying on a business. It should be noted that the principles in this ruling apply equally to all businesses.

There is also a comprehensive body of case law in respect to share trading activities. This case law has established the following factors as relevant considerations in such cases:

(a) the nature of the activities and whether they have the purpose of profit-making

(b) the complexity and magnitude of the undertaking

(c) an intention to engage in trade regularly, routinely or systematically

(d) operating in a business-like manner and the degree of sophistication involved

(e) whether any profit/loss is regarded as arising from a discernible pattern of trading

(f) the volume of the taxpayer's operations and the amount of capital employed by him,

and more particularly in respect of share traders:

(a) repetition and regularity in the buying and selling of shares

(b) turnover

(c) whether the taxpayer is operating to a plan, setting budgets and targets, keeping records

(d) maintenance of an office

(e) accounting for the share transactions on a gross receipts basis, and

(f) whether the taxpayer is engaged in another full-time occupation.

The overall impression gained from applying the above to your factual scenario is that you are in the business of trading shares. Specifically we refer to the fact that the magnitude of your transactions is reasonably substantial, you were not engaged in any other occupation, and the nature of the activity was something more than a mere academic pursuit or hobby.

As you were carrying on a share trading business for the relevant year, the income from your share sales is included in your assessable income, and you are entitled to claim deductions for the expenses incurred to acquire the shares and other expenses incurred in the course of carrying on the business.