Edited version of your written advice

Authorisation Number: 1051367238821

Date of advice: 1 May 2018

Ruling

Subject: Am I in business - Share trading

Question

Were you carrying on a business of share trading during the 2016-17 income year?

Answer:

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts

You commenced buying and selling shares around two years ago.

You regularly research stock markets by using magazines, newspapers and internet sites. You also utilise the services of a professional share trader who acts as a mentor.

You conduct your share trading through an online trading account.

You have home computer and iPad which you use for research and trading.

You initially contributed $xxx of your own funds and have an offset loan facility available to purchase shares.

You limit the total cost of stock on hand to be under $xxx

The opening stock value of shares held in the relevant year was $xxx

The value of shares purchased relevant year was $xxx

The year end stock value held at end of the relevant year was $xxx

For the relevant year you undertook a large amount of share transactions.

You hold the shares for short periods of time, usually less than one month.

You generally spend xxx hours per week on your share trading activities

You generally buy shares in volatile and high risk sectors to realise short term gains.

You have a stop loss limit of 10 percent where you will consider selling the shares at a loss.

You are not engaged in full time employment.

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

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, your share trading shows repetition and regularity, you hold your shares for short periods and the nature of the activity was something more than a mere academic pursuit or hobby.

Accordingly the weighing up of the relevant factors indicate that you were carrying on a business as a share trader in the relevant year.

Your share purchases and sales would be considered to be business activities. Any profits or losses from your share investments would then be considered to be assessable income and reported in your tax return as net income or loss from business.