Edited version of private advice

Authorisation Number: 1051549818136

Date of advice: 19 July 2019

Ruling

Subject: Income tax - trading in binary options

Issue 1

Question 1

In the income year ended 30 June 20xx, did the taxpayer carry on a business in a certain activity (the activity)?

Answer

No

Question 2

In the income year ended 30 June 20xx, did the taxpayer carry on the activity with a profit making purpose as per section 6-5 of the Income tax Assessment Act 1997 (ITAA 1997) or as a profit making undertaking as per section 15-15 of the ITAA 1997?

Answer

Yes

Question 3

Is the taxpayer entitled to deduction pursuant to section 25-40 of the ITAA 1997 for the losses incurred in relation to the activity in the income year ended 30 June 20xx?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 20xx

The scheme commences on

1 July 20xx

Relevant facts and circumstances

You commenced the activity from 20xx income year for which you had neither forward planning nor budgeting.

Your sole motivation for entering into the activity was to make a quick profit.

You had neither prior skill nor training in relation to the activity and relied on several sources to partake in the activity.

You had full time employment in the relevant year and only expanded a few hours every day after work in relation to the activity. Your employment had no relation with the activity nor had it given you any insight into the activity.

You carried on the activity for only one year and incurred losses from the activity.

You do not have any intention to continue the activity.

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 15-5

Income Tax Assessment Act 1997 section 25-40

Income Tax Assessment Act 1997 paragraph 118-37(1)(c)

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless specified otherwise

Summary

You were not carrying on a business in relation to the activity in the income year ended 30 June 20xx.

However you were carrying on the activity as a profit making undertaking or for a profit making purpose.

Therefore, you are entitled to deduction for the losses you incurred in carrying on the activity in the income year ended 30 June 20xx.

Detailed reasoning

Where the activity is carried on as a business, the gains will be accounted for under section 6-5 and the losses under section 8-1.

If the activity is not carried on as a business, but is carried on as either:

·         with a profit making purpose; and/or

·         a profit making undertaking

then any profit will be assessable on revenue account as either ordinary income and accounted for under section 6-5, or the profit will be assessable as a profit making undertaking in accordance with section 15-15.

In your case, you undertook the activity in the income year ended 30 June 20xx to make some quick profit. You had full time employment during the year. You did not undertake any training nor had any business plan or strategy to carry out the activity. Your sole intention was to make some quick money from the activity.

Therefore, any income from this activity would be assessable as ordinary income under section 6-5 or assessable under section 15-15 as profit making undertaking.

Consequently the losses you incurred are deductible under section 8-1 or under section 25-40. You may offset your loss against your other income.