Edited version of private advice

Authorisation Number: 1052396915278

Date of advice: 21 May 2025

Ruling

Subject: Am I in business - share trader or share investor

Question 1

Is the income that you have received from the share transactions assessable as business income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are losses incurred by you in the 20YY-YY and 20YY-YY financial years from trading in Contract for Difference (CFD) deductible under section 25-40 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

In the 20YY and 20YY financial years you participated in trading.

Your intent was to generate income.

You purchased software to keep track of your share trading.

You used trading platforms to trade is shares.

You sold your rental property and had enough the money to pay out your home loan. However, you instead withdrew money from the loan to purchase larger parcels of shares.

You are a fly in fly out worker who is employed on a week on, week off roster at a mine.

The mine has internet reception and you use your laptop as well as your mobile to trade in shares.

When at the mine you set up trades while working and check on them throughout the trading day.

When at home you have a laptop set up in a home office and complete research on the computer.

Although your trading activities don't follow a structured system, you research market trends through communities.

You have been actively trading for the last XX years in the ASX stock market focussing on XX stocks.

In 20YY, you executed XX trades and invested a total capital of $XX.

In 20YY, you incurred a loss of -$XX.

In 20YY, you executed XX trades and invested a total capital of $XX.

In 20YY, you incurred a loss of -$XX.

You do not have any specific systems in place to preserve your capital.

Your trades are based on specific market conditions and events that prompted entry into the market at different time. This irregular trading approach was a strategic choice based on your analysis and assessment of the market.

Your trading activities have resulted in financial losses. You have faced challenges in accurately predicting market movements, which led to decisions that did not yield the expected return.

Your strategy involves adapting to the ever-changing market landscapes, which sometimes leads to hasty decisions and loss-making trades but your intent was to capitalise on short-term fluctuation.

You have kept records of your trading with software, documenting transaction dates and amounts.

You dedicate time to monitor the markets and analysing potential trades as will as spending time on research and decision making.

Prior to January 20YY you had not completed any courses in share trading, Since January and continuing up to now you have been involved in a training community where you are learning about trading CFD's.

You were able to maintain consistent trades while maintaining work commitments.

Relevant legislative provisions

Income Tax Assessment Act section 6-5

Income Tax Assessment Act section 25-40

Question 1

Is the income that you have received from the share transactions assessable as business income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Reasons for decision

Whether or not a person is carrying on a business is a question of fact and degree and is determined on a year-to-year basis. If a taxpayer's 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.

Taxation Ruling TR 97/11 income tax: am I carrying on a business of primary production? (TR 97/11) 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 just an intention to engage in business

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

•                     whether there is regularity and repetition of the activity

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

•                     whether the activity is planned, organised and carried on in a businesslike manner such that it is described as 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 sporting activity.

These factors are considered in combination, no one factor is decisive. Whether a business is being carried on depends on the large or general impression gained.

The question of whether you were engaged in share trading is essentially based on the facts of your situation. This matter has been addressed in a number of court cases. In Case 6297 (1990) 21 ATR 3747 (Case X86), 90 ATC 621 (Case 6297), the following specific indicators of carrying on a business for someone carrying on a share market activity were listed as:

•                     the nature of the activities and whether they have the purpose of profit-making

•                     the complexity and magnitude of the undertaking

•                     an intention to engage in trade regularly, routinely, or systematically

•                     operating in a business-like manner and the degree of sophistication involved

•                     Whether any profit or loss is regarded as arising from a discernible pattern of trading

•                     The volume of the taxpayer's operation and the amount of capital employed by them

More particularly the case looked at specific indicators in respect of share traders:

•                     repetition and regularity in the buying and selling of shares

•                     turnover

•                     whether the taxpayer is operating to a plan, setting budgets and targets, keeping records

•                     maintenance of an office

•                     accounting for the share transactions on a gross receipt's basis

•                     whether the taxpayer is engaged in another full-time occupation

In a more recent case Hartley v FCT (2013) AATA 601 (Hartley case) the AAT affirmed a decision of the Commissioner that a taxpayer was a share investor and was not carrying on a business of share trading and denied deductions that had been claimed on the premise that a business existed for the relevant years.

In the Hartley case the taxpayer was during relevant times a full-time council employee. According to the taxpayer, he had been actively involved in the share market for many years, which occupied about 15 hours of his time per week. He also claimed he had an arrangement with his employer where he could trade during business hours and then make up any time after hours. For the relevant tax years (the financial years ended 30 June 20YY and 30 June 20YY), the taxpayer lodged tax returns claiming significant deductions on the basis that he was carrying on a business of share trading. After an audit, the Commissioner determined that the taxpayer was a share investor and issued assessments refusing the deductions. The AAT considered each of the relevant factors established in case law (in particular, the factors listed in Case 6297) in determining whether or not the taxpayer was engaged in a business of share trading. Although noting the 'matter was finely balanced', the AAT was of the view that the factors pointing against the existence of a share trading business were more significant than those pointing in favour of the existence of a share trading business. The factors in favour of the Commissioner's position identified by the AAT included the following:

•                     The buying and selling of shares were not regular or routine.

•                     There appeared to have been very little in the way of a plan, although a written plan was produced belatedly; the AAT added that very little appeared to have been done in terms of setting budgets and targets, and that the trading and the background research was simple and unsophisticated.

In the case of share trading repetition and regularity are considered to be important indicators on whether or not a business is being carried on, with the size and scale of the activity being supporting factors.

whether the activity has a significant commercial purpose or character

This indicator requires that you be able to show that the activity is carried on for commercial reasons and in a commercially viable manner. You need to be able to show that the interaction between the size and scale of the activity, the repetition and regularity and the intention and prospect of profit are sufficient to conclude that the activity has a significant commercial purpose.

You do not have a business plan and your trading activities do not follow a structured system.

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

The intention of the taxpayer in engaging in the activity is a relevant indicator in determining whether a business is being carried on.

The Full Federal Court in Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 stated that:

'The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant.'

You have other employment but work one week on, one week off at a mine. The mine has internet reception you use your laptop as well as your mobile to do share trading. When at the mine you set up trades while working and check on them throughout the trading day.

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

This indicator is directed at determining whether the taxpayer entered into the activity with an intention to make a significant commercial or financial gain from it. In Hope v The Council of the City of Bathurst (1980) 144 CLR 1; 80 ATC 4386; (1980) 12 ATR 231, Mason J states that business activities are usually activities that are 'engaged in for the purpose of profit on a continuous and repetitive basis'.

The intentions of the taxpayer are ascertained from looking objectively at their actions, including any arrangement entered into. All of the income expected to be received from, and all of the costs associated with, the activity are taken into account to determine what profit, if any, is expected.

It is important to show how the activity can make a profit. However, stronger evidence of an intention to make a profit occurs when the taxpayer has conducted research into his/her proposed activity, consulted experts or received advice on the running of the activity and the profitability of it before setting up the business. This was the situation in FC of T v. JR Walker 85 ATC 4179; (1985) 16 ATR 331.

Your intention was to generate a profit but your trading activities don't follow a structured system. You research market trends through communities and have previous experience trading in XX

Prior to January 20YY you had not completed any courses in share trading, Since January and continuing up to now you have been involved in a training community where you are learning about trading CFD's.

whether there is regularity and repetition of the activity including the size, scale and permanency of the activity

In 20YY, you executed XX trades and in 20YY, you executed XX trades however month to month the number of trades varies significantly.

Conclusion

In this case the buying and selling of shares were not regular or routine and your trading activities do not follow a structured system. There was also no set plan or specific systems in place to preserve the capital you invested. We do not consider that you activities were conducted in a businesses like manner or with any permanency.

Therefore, the Commissioner considers you were not carrying on a business of share trading for the years ended 30 June 20YY and 20YY.

As you are not carrying on a business the income would not be assessable as business income under section 6-5 of the ITAA 1997.

Question 2

Are losses incurred by you in the 20YY-YY and 20YY-YY financial years from trading in Contract for Difference (CFD) deductible under section 25-40 of the ITAA 1997?

Reasons for decision

In the 20YY financial year you completed XX CFD trades.

The Commissioner considers that the repetition and regularity of your trading activities was insufficient to constitute a business activity in this year. Further, the size and scale, in particular the investment of capital, was minimal in scale.

Therefore, the Commissioner does not consider you were carrying on a business in the 20YY financial year.

Taxation Ruling 2005/15 Income tax: tax consequences of financial contracts for differences (TR 2005/15) outlines the tax consequences of entering into a financial contract for differences (CFD).

Paragraphs 11-15 of TR 2005/15 provide the following guidance on the tax implications of gains and losses from CFDs:

11. A gain from a financial contract for differences will be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) where the transaction is entered into as an ordinary incident of carrying on a business, or where the profit was obtained in a business operation or commercial transaction for the purpose of profit making.

12. A loss from a financial contract for differences will be an allowable deduction under section 8-1 of the ITAA 1997 where the transaction is entered into as an ordinary incident of carrying on a business or in a business operation or commercial transaction for the purpose of profit making.

13. A gain from a financial contract for differences will be assessable income under section 15-15 of the ITAA 1997 where a taxpayer enters into a financial contract for differences in carrying on or carrying out a profit-making undertaking or scheme, and the gain from it is not assessable under section 6-5 of the ITAA 1997.

14. A loss from a financial contract for differences where the gain would have been assessable under section 15-15 of the ITAA 1997 is an allowable deduction pursuant to section 25-40 of the ITAA 1997.

Application to your circumstances

Your CFD activities were undertaken with a view to making a profit and therefore your gains from trading CFDs are assessable under section 15-15 of the ITAA 1997 and your losses are deductible under sections 25-40 of the ITAA 1997 for the year ended 30 June 20YY.