Edited version of private advice

Authorisation Number: 1052202140712

Date of advice: 19 December 2023

Ruling

Subject: Share trading

Question

Does the Commissioner accept that no amount from the sale of shares by the deceased during their lifetime is assessable as ordinary income under section 6-5 Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Having considered your circumstances and the relevant factors the Commissioner has the view that the sale of the shares is not considered to be ordinary income. Taxation Ruling 97/11 provides an outline of relevant indicator of whether a personal is in business, notably:

•         Does the activity have a significant commercial purpose or character?

•         Does the taxpayer have more than a mere intention or engage in business?

•         Is there repetition and regularity in the activity?

The behaviour of the deceased had little commercial purpose with no regularity whatsoever nor was there any evidence to suggest that they believe to or intend to engage in a business of share trading. The deceased had been trading shares for several years in which their behaviour was in line with that of a share investor and not a share trader.

Taxation Ruling 92/3 provides guidance as to whether profits on isolated transactions are income. Paragraph 6 stats the following:

Whether a profit from an isolated transaction is income according to the ordinary concepts and usages of mankind depends very much on the circumstances of the case. However, a profit from an isolated transaction is generally income when both of the following elements are present:

(a)   the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain: and

(b)   the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.

It is apparent the deceased was not operating a business and it is reasonable to conclude she commenced share investing with the intention to make a profit or a gain as a result of the transactions. As a result, the sales of any shares would be considered profit making activity with gains and losses to be considered to be of a capital nature. Further information on CGT events can be found by searching 'QC 66016' on ato.gov.au.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

•         You are The Trustee for a deceased estate

•         The deceased passed away in the 20XX financial year

•         The deceased was a retiree who sustained themselves with their own independent wealth

•         The decease had held a XXXX share account since at least 19XX where they purchased and sold shares

•         The shares were purchased using their personal savings

•         The deceased had a direct investment account linked to their trading account

•         The deceased opened the account on a specified date however no transactions occurred until a number of years later

•         You provided us with details on the value of the buys and sells for the ruling period

•         The deceased would trade sporadically with 2 trades a month some years but, significantly less most years

•         The deceased had no pattern to their activities and had a noticeable decline in the number of trades in the deceased's later years

•         The deceased used a tax agent for their income tax returns

•         The income tax returns did not report any capital gains or losses but, included dividends

•         You have limited knowledge of the deceased's activities but, have concluded the following though family and existing records:

o   The deceased did not consider themselves to be in business

o   The deceased had no prior experience trading

o   The deceased received no professional assistance

o   The deceased had no business plans or trading strategy

o   The deceased did not trade outside of XXXX

•         You provided a record of all trades done by the deceased though XXXX

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 Division 70

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 subsection 995-1(1)