Decision impact statement

Wong and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: 2011/3450
Judge Name: SM Sweidan
Judgment date: 27 April 2012
Appeals on foot:
No

Impacted Advice

Relevant Rulings/Determinations:

• None

Subject References:
Carrying on a business
Share trading
Trading stock

Précis

Outlines the ATO's response to this case, which concerned whether the applicant was carrying on a business of trading in listed shares and units, and, if so, whether units in a property trust were acquired and held as part of the trading stock of that business.

Brief summary of facts

The applicant is a medical practitioner who purchased and sold various ASX listed shares and units during the 2008 and 2009 income years. The applicant's husband managed her investments.

The applicant's husband also purchased and sold listed shares and units during the 2008 and 2009 income years on behalf of a family trust of which he and the applicant were trustees. This included 1,100,000 $1 units acquired in a registered management investment scheme property trust (PTN).

In February 2008, the applicant purchased the PTN units from her husband for $1,100,000. The closing price for PTN units on the ASX at that time was 69c per unit. The applicant sold 50,000 PTN units in February 2009 for $3860 and still holds the remaining units. As at 30 June 2009, PTN units were being traded on the ASX for approximately 10c per unit.

The losses suffered and gains made by the applicant during the 2008 and 2009 income years from selling shares and units were not included in the calculations of her taxable income in her original tax returns for those years. The applicant later lodged an amended return for the 2008 year, in which the lower calculation of taxable income reflected the relevant losses and gains and the purchase of the PTN units.

The applicant also objected to her assessment for the 2009 year, contending that her taxable income should be reduced to nil because of losses suffered from carrying on a business of share trading, and to reflect the closing value (nil) of the PTN units held as trading stock.

Issues decided by the tribunal

Given the extent and volume of her trading, the Tribunal found that the applicant was carrying on a business of share trading in the 2008 and 2009 income years, and that the PTN units were trading stock of that business, having been acquired and held in those years for profit-making purposes (paragraph 51).

However, the Tribunal found that the loss attributable to the sale and holding of the PTN units during the 2009 year was not the amount of $1,096,140 calculated by the applicant. As the applicant did not acquire the PTN units at arm's length, the opening value of the units for the 2009 year is their market value under section 70-20 of the Income Tax Assessment Act 1997 (ITAA 1997) when acquired (approximately $770,000). The Tribunal also found that the market value of the units at the end of that year was approximately $105,000 (paragraphs 55 to 57).

Tax Office view of Decision

The ATO accepts that it was reasonably open to the Tribunal on the evidence before it to find that the applicant was carrying on a business of share trading and that the PTN units were trading stock of that business.

Administrative Treatment

Implications on current Public Rulings & Determinations

None

Implications on Law Administration Practice Statements

None

Court citation:
[2012] AATA 254
2012 ATC 10-247
88 ATR 305

Legislative References:
Income Tax Assessment Act 1997
Division 70
s 70-5
s 70-20

Case References:
Case X31
90 ATC 296

Martin v FC of T
(1952) 10 ATD 37