Private ruling: Am I in business - Share trader
Date of advice: 18 October 2016
Published: January 2017
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20XX

Ruling: Q1: Were you carrying on business of share trading during the 20XX-YY income year? | A1: Yes. | Q2: Were you carrying on a business of share trading during the 20YY-ZZ income year? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 102-5 | Income Tax Assessment Act 1997 Section 102-10

Reasons for decision: Summary: The question of whether a business is being carried on is a question of fact and degree and is determined on a year by year basis. If your 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. Generally, where you carry out business activities for the purpose of earning income from buying and selling shares you are considered to be a share trader. Your shares are treated as trading stock with the income from your sales included in your assessable income under section 6-5 of the ITAA 1997 ( Income Tax Assessment Act 1997 (ITAA 1997)), and the expenses incurred to acquire the shares deductible under section 8-1 of the ITAA 1997. Other expenses incurred in the course of carrying on the business would also be deductible under relevant provisions of the Income Tax Assessment Act 1936 or the ITAA 1997. However, if you hold your shares for the purpose of earning income from dividends and capital growth, you will be regarded as a share investor. Your shares would be treated as capital gains tax (CGT) assets with any gains from the disposal of the shares included in your assessable income as a capital gain (section 102-5 of the ITAA 1997) and any losses sustained from the disposals would be capital losses (section 102-10 of the ITAA 1997). Taxation Ruling TR 97/11 ( Income Tax: am I carrying on a business of primary production?) provides a guide to the indicators that the courts have held to be relevant as to whether or not a person is carrying on a business. It should be noted that the principles in this ruling apply equally to all businesses. There is also a comprehensive body of case law in respect to share trading activities. This case law has established the following factors as relevant considerations in such cases: (a) the nature of the activities and whether they have the purpose of profit-making (b) the complexity and magnitude of the undertaking (c) an intention to engage in trade regularly, routinely or systematically (d) operating in a business-like manner and the degree of sophistication involved (e) whether any profit/loss is regarded as arising from a discernible pattern of trading (f) the volume of the taxpayer's operations and the amount of capital employed by him, and more particularly in respect of share traders: (a) repetition and regularity in the buying and selling of shares (b) turnover (c) whether the taxpayer is operating to a plan, setting budgets and targets, keeping records (d) maintenance of an office (e) accounting for the share transactions on a gross receipts basis, and (f) whether the taxpayer is engaged in another full-time occupation. The overall impression gained from applying the above to your factual scenario is that you are in the business of trading shares. Specifically we refer to the fact that the magnitude of your transactions is reasonably substantial, your share trading shows repetition and regularity, you hold your shares for short periods, you have a home office, and the nature of the activity was something more than a mere academic pursuit or hobby. Accordingly the weighing up of the relevant factors indicate that you were carrying on a business as a share trader for the year ended 30 June 20YY and the year ended 30 June 20ZZ. Your share purchases and sales would be considered to be business activities. Any profits or losses from your share investments would then be considered to be assessable income and reported in your tax return as Net income or loss from business.

Relevant facts: You commenced buying and selling shares in 20XX. | You have obtained an Australian Business Number in which you undertake the share trading. | You have purchased a computer with internet access solely for the use of share trading. | You also have a home office area dedicated to share trading. | You regularly research stock markets by using magazines, newspapers and internet sites. | You conduct your share trading through a commercial operator. | You have contributed some of your own funds and have a loan facility available to purchase shares. | During the 20XX-YY financial year you made purchases with a total purchase value of $A. You sold shares with a total sale value of $B. | You have a closing balance as at 30 June 20YY of $C. | During the 20YY-ZZ financial year you made purchases with a total purchase value of $D. You sold shares with a total sale value of $E. | You have a closing balance as at 30 June 20ZZ of $F. | For the 20XX-YY financial year you undertook a number of share transactions. | For the 20YY-ZZ financial year you undertook a number of share transactions. | You hold the shares for short periods of time, usually less than one week. | You are engaged in full time employment.