Taxpayer and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2010/4083)
Judgment date: 5 August 2011
Date published: 1 November 2011
Decision outcome: Adverse

Summary of decision:
Outlines the ATO's response to this case which concerns whether the taxpayer was engaged in the business of share trading during the income tax year ended 30 June 2008.

Overview of facts:
The applicant is the chief executive of a profitable services business conducted by a subsidiary of a holding company that the applicant controls. The day-to-day management of the services company has been delegated to competent executives, which enables the applicant to pursue a range of investment interests. The applicant also controls two other companies that invest in property and share markets. The applicant also has investments in shares and property in his own name. | The applicant registered with Commsec and arranged a margin load facility in late 2004. The applicant acquired some shares in 2005. The applicant became involved in a stock-picking and research service called Stockval in October 2006. The applicant purchased a licence from Stockval and became entitled to receive the firm's regular research and advice on share market opportunities. The licence is current and runs until 2012. The applicant also conducted his own online searches on the Commsec website and elsewhere, and talked to people in the market like his broker. | The applicant's strategy was to buy stocks that were out of favour at a low or falling price and wait for the price to rebound when the shares could be sold and a profit realised. However there was no formal business plan. | The applicant's pattern of buying and selling shares did not demonstrate that the applicant was turning over the shares he acquired. The applicant attributed the lack of turnover of shares to the global financial crisis which first started in 2007 and deepened in 2008, and the applicant's preference to hold onto the blue chip shares to maintain his Commsec margin loan facility. | The applicant's financial commitment was relatively large and the applicant managed his share trades on his own. The applicant conducted his trades from his laptop computer or mobile phone. | Issues decided by the tribunal | The applicant was in the business of trading shares during the income tax year ended 30 June 2008 based on the following: • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. | • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. | The Tribunal was satisfied that the applicant was a witness of truth.

Issues decided:
The applicant was in the business of trading shares during the income tax year ended 30 June 2008 based on the following: • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. The Tribunal was satisfied that the applicant was a witness of truth.

ATO view of decision:
The case was decided on its facts and the decision that the taxpayer was conducting a business of share trading was based on the findings made by the Tribunal. As the decision was based on the specific facts of the case, it will not have any impact on any existing or future litigation proceedings.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A

Legislative references: Income Tax Assessment Act 1997 6-5 8-5
Case references: Federal Coke Co Pty Ltd v Federal Commissioner of Taxation [1977] FCA 3 7 ATR 519 77 ATC 4255 Ferguson v Federal Commissioner of Taxation [1979] FCA 29 79 ATC 4261 9 ATR 873 John v Commissioner of Taxation [1989] HCA 5 (1989) 166 CLR 417 20 ATR 1 89 ATC 4101 Smith v Commissioner of Taxation [2010] AATA 576 2010 ATC 10-146 Shields v Deputy Federal Commissioner of Taxation (1999) 41 ATR 1042 99 ATC 2037
Subject references: Business of share trading Share investor