Edited version of private advice

Authorisation Number: 1052081360052

Date of advice: 3 February 2023

Ruling

Subject: Shares and cryptocurrency - trader or investor

Question

Are you considered to be a share and cryptocurrency trader from a specified date during the 20XX-XX financial year?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

At a specified date you held a small portfolio of both Australian and International shares, not of a significant value.

In a specified month during the 20XX-XX financial year you decided that you could make significant money by being a share trader. You provided with actions that you completed following this decision.

You did not have an investment strategy or business plan.

You do not maintain any further records outside the system generated reports for your share and cryptocurrency.

You provided us with details on the hours that you spent per week on your share and cryptocurrency activities.

You provided us with details on the number of trades you completed in the 20XX-XX financial year.

Your trading activity in Australian shares was conducted during a 1 ½ month period.

You made a specified amount of international share purchases during a 3 ½ month period. You did not sell these shares during the 20XX-XX financial year.

Your trading activity with Company A was conducted during a 3 ½ month period, with the majority of your trades occurring in Month A and Month B.

Your shares and cryptocurrency were held for varying periods (days to months).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Summary

When considered against the factors outlined in TR 97/11 Income tax: am I carrying on a business of primary production? your activities are considered to be those of a cryptocurrency investor and should be returned on capital account.

Detailed reasoning

Carrying on a business as a share and cryptocurrency trader

There are 2 possible scenarios as to how gains and losses from share and cryptocurrency trading activities can be treated for income tax purposes. These scenarios and their consequences are as follows:

1.   Business Income

In this scenario your share and cryptocurrency activities would be considered to constitute the carrying on of a business. Your share and cryptocurrency would be regarded as trading stock and any gains or losses would be included in your assessable income. Your income would be ordinary income and assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), while your expense would be deductible under section 8-1 of the ITAA 1997.

2.   Investment Income

In this situation your share and cryptocurrency trading activities would be regarded as investing. Your share and cryptocurrency assets are considered capital gains tax (CGT) assets. Any gains resulting from the disposal of shares or cryptocurrency would be income as a capital gain. Any losses sustained on the disposal of your shares or cryptocurrency would be a capital loss. Your income would be statutory income and assessable under section 102-5 of the ITAA 1997, while a loss would be deductible under section 102-10 of the ITAA 1997.

To determine which of these treatments applies to your situation it is necessary to make a determination of whether or not your share and cryptocurrency activities amount to the carrying on of a business.

Whether or not a person 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 up all the relevant indicators within the context of your own situation. No one indicator determines whether or not a business is being carried on.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? lists the following indicators as relevant in determining if a business is being carried on:

•         whether the activity has a significant commercial purpose or character;

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

•         whether a taxpayer has a purpose of profit as well as prospect of profit from the activity;

•         whether there is repetition and regularity of the activity;

•         whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

•         whether the activity is planned, organised and carried out in a business-like manner such that it is directed at making a profit;

•         the size, scale and permanency of the activity; and

•         whether the activity is better described as a hobby, a form of recreation or a sporting activity.

Application to your situation

For the year ended 30 June 20XX, you were not carrying on a business of share and cryptocurrency trading.

The factors or indicators that give the overall impression that you were not carrying on a business of share and cryptocurrency trading for the year ended 30 June 20XX are as follows:

1.    Your activity lacks significant commercial purpose.

2.    You did not have a business plan or an investment strategy.

3.    You traded for less than 4 months, with the majority of your trades occurring in either Month A or Month B.

4.    Your share and cryptocurrency transactions do not show the require repetition, regularity and scale required to be considered to be a business.

As a result, for the 20XX-XX financial year, your share and cryptocurrency activity are indicative of a share and cryptocurrency investor and should be returned on capital account.