Private ruling: Share trading
Date of advice: 17 July 2025
Published: 15 September 2025
Ruling period: Income year ended 30 June 20YY | Income year ended 30 June 20YY

Ruling: Q1: Did the Company hold the shares in its inventory as trading stock under Division 70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: If the answer to Question 1 is 'no', did the Company hold shares in its inventory on revenue account as part of a profit-making scheme so that profits on disposal are ordinary income under section 6-5 of the ITAA 1997? | A2: Not applicable as the answer to Question 1 is 'yes'.

Relevant facts and circumstances: The Company was incorporated in 20YY and is an Australia resident for tax purposes. The Company is the head company of a tax consolidated group that currently comprises of the Company alone as it does not have any subsidiaries. The Company commenced share trading activities from incorporation and has reported its main business activity as 'stockbroking' or 'trading' in each income tax return lodged. The Company intends to make profits and has made profits cumulatively over the years since its commencement. A is the sole director and secretary of the Company. A is the controlling mind of the Company and carries out all the share trading activities on its behalf. A has a Bachelor of xxx and a Master of xxx. They are a professional xxx who has worked as a xx. They had previously worked as the principal of a xx firm and as a consultant for companies listed on the Australian Securities Exchange (ASX). A's experience led them to specialise in the xx and resources sector, as well as the xx sector. The shareholding of the Company is as follows: Table 1: Company shareholdings Shareholder Class and number of shares held A 1 A class share XX ordinary shares Company T 1 B class share B 1 C class share XX ordinary shares Total 1 A class share 1 B class share 1 C class share XXX ordinary shares Neither A nor B operates a business in their personal capacity. A spends X hours a day on research, analysis and due diligence in relation to the share trading activities they undertake for the Company. They do not have any other full-time employment. A's research includes systematically studying daily and long-term trends in share prices. They use this research, and advice they receive from their professional network, to identify share trading opportunities. In relation to some prospective share purchases, A also conducts site visits (including overseas visits) to enable the Company to assess a Project's infrastructure, management and staff, as well as any potential difficulties before making a decision. The Company trades in both listed and unlisted shares. The Company also engages in a mix of short-term and mid-term trading in an attempt to both maximise profits and generate sustainable profits, but all shares are ultimately turned over within a timeframe that is dictated by market forces, the economy, the company's progress and prospects along with those of the sector to which it belongs. The company has no long-term hold positions. All long-term (capital) investment is undertaken separately in A's family trust. The Company primarily trades in shares of unlisted companies within the xxx and xxx sector, due to A's expertise, experience and connections within the industry, as well as in xx xx, xxx and the xxx industry. The primary strategy is to: • purchase the unlisted shares as a 'seed opportunity' at an early stage of a company's lifecycle; • hold those shares until such time as the company in which the shares are held have reached an expected business milestone or target, and their price has increased; and • sell either when the investment lists on a ASX through an Initial Public Offering or on the private market. Shares in unlisted companies can be held for longer cycle times (for resale) compared to listed shares but the Company holds all its shares for the purpose of sale for profit. Listed shares make up a small proportion of the Company's stock. As at 30 June 20YY, the total inventory of shares held by the Company was $XX,XXX,XXX.Of that, the value of the unlisted shares held by the Company was $XX,XXX,XXX (representing 99.75% of total inventory) and the value of the listed shares held by the Company was $XX,XXX (representing 0.25% of total inventory). The Company's level of investment has increased over the years, funded from the continual reinvestment of the income generated from its shares. The relative reduction in trading volume in the 20YY and 20YY income years was due to ongoing family matters, including Family Court proceedings, which drew upon A's time and resources away from the Company's activities. The Company made a profit in excess of $X million for the 20YY income year, primarily from the sale of unlisted shares. The Company's turnover for the 20YY and 20YY income years was as follows: Table 2: The company's turnover Income 20YY income year 20YY income year Fees 1 $XX,XXX $XX,XXX Sales on listed shares $ XXX,XXX $XX,XXX Profit on disposal of stocks $X,XXX,XXX Dividends $X,XXX,XXX $ XXX,XXX Interest $ XXX,XXX $X,XXX Total $X,XXX,XXX $ XXX,XXX No unlisted shares were sold during the 20YY income year, owing in part to A's personal circumstances, including adverse mental health as a result of their marriage breakdown and subsequent legal proceedings, but more so as no trading milestones were reached for shares that would trigger a sale consistent with the Company's strategy. The Company has never made a net loss over an income year. The trades are made online using online software and platforms and online charting. A uses a home office to trade, but also trades online while travelling. The Company keeps appropriate business records and engages investment managers, Company Y to assist with the preparation of reports of trades made and the Company's available funds in real time. Company Y do not advise or dictate trading decisions as they are only responsible for reporting. The Company maintains business insurance. Given A manages and funds the Company on their own, they have not applied for external financing and has not been required to develop formal plans. The Company therefore only formally documented its business plan in 20YY. That plan is detailed and based on the standard practice of the Company over its history, that is, primarily a strategy of trading the stocks of undervalued unlisted companies operating in the xxx and xxx industry, as well as xx, xx and xx, to deliver recurring profits for reinvestment. Unbeknown to A at the time, the Company's profit from share sales in the 20YY and 20YY income years (contrary to their reporting in earlier income tax returns lodged, all of the Company's internal broker reports and all of the Company's financial statements) were reported in the Company income tax returns for those years by the Company's previous accountant as capital gains. The Company considers this to be factually incorrect and amended its assessment for the 20YY income year in January 20YY. 2

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 Division 70 | Income Tax Assessment Act 1997 paragraph 70-10(1)(a)

Reasons for decision: Summary: All subsequent legislative references are to the ITAA 1997. The Company carries on a business of share trading and held the shares in its inventory as trading stock pursuant to Division 70 in the 20YY and 20YY income years. | Detailed Reasoning - Detailed reasoning: Paragraph 70-10(1)(a) defines trading stock to include 'anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business'. The shares held by the Company will therefore be trading stock where: (a) the shares are acquired and held for the purpose of sale; and (b) the sale occurs in the ordinary course of a share trading business carried on by the Company. Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? states (at paragraph 19): While the xx set out in the case law are relevant to companies, companies are typically formed for the purpose of carrying on a business. In xx and xx, it was observed that where a company aims to make, and has a prospect of profit, it is presumed that the company intends to, and does in fact, carry on a business. In xx , xx observed that this means any gainful use to which a company puts its assets will, on its face, amount to the carrying on of a business. However, this presumption can be rebutted if it can be shown that, on the facts, the company had no aim or prospect of making a profit. Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? is also instructive and 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. 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 or loss is regarded as arising from a discernible pattern of trading; and (f) the volume of the taxpayer's operation and the amount of capital employed by them. Further factors considered include: (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 No single factor is necessarily determinative (see Federal Commissioner of Taxation v Radnor Pty Ltd (1991) 102 ALR 187 at 202 per Hill J). However, one of the key factors to consider when analysing whether a business of share trading is being carried on is the repetition and regularity of share trading activities. The higher the volume of trades, the more likely it is that a business of share trading is being carried on. Additionally, it would be expected that a business of share trading would involve the purchase of shares on a regular basis through a regular or routine method. | Detailed Reasoning - Application to the Company's circumstances: The nature of the activities and whether they have a purpose of profit-making The nature of the activities carried on by the Company is more than a mere academic pursuit or a hobby. The Company had a profit-making intention from its purchasing and selling of shares, as reflected by the significant level of turnover and the amount of capital deployed by the Company for that purpose, and (with the exception of the 20YY income year) the vast majority of the Company's income relates to profits generated from the sale of unlisted shares. | Detailed Reasoning - The complexity and magnitude of the undertaking: The Company follows a strategy for buying and selling shares that it has established. The strategy is sophisticated and not restricted to high profile public companies. The magnitude of the undertaking, as demonstrated by both the level of capital employed by the Company to the activity and the time dedicated by A to the activities of the Company (4 to 6 hours a day), is substantial. | Detailed Reasoning - An intention to engage in trade regularly, routinely or systematically: The Company has provided a sufficient explanation of its trading strategy and demonstrated it has an intention to engage in share trading regularly and systematically. The level of activity typically undertaken by the Company supports that intention. | Detailed Reasoning - Operating in a business-like manner and the degree of sophistication involved: A holds a Master of xx and has over 26 years working as a professional xx. That experience is called upon by the Company to conduct its own research, analysis and due diligence (including site visits). By basing its decisions to buy and sell shares on that considered market analysis, the Company is considered to be operating in a business-like manner with a sufficient degree of sophistication. | Detailed Reasoning - Whether any profit or loss is regarded as arising from a discernible pattern of trading: As all purchases and sales of shares are carried out in accordance with the Company's long-standing strategy, all profits (and gross losses) are regarded as arising from a discernible pattern of trading. | Detailed Reasoning - The volume of the Company's operations and the amount of capital employed by it: The capital employed by the Company is significant and continually increasing. As at 30 June 20YY, the total inventory of shares held by the Company was $XX, XXX, XXX. | Detailed Reasoning - Repetition and regularity in the buying and selling of shares: While the nature of unlisted shares is such that the sale cycle is generally longer than that for listed shares, and the level of activity undertaken during the relevant period may have dropped off compared to other years as a consequence of A's personal circumstances, the Company nevertheless remains engaged in a continuous cycle of buying and selling shares for a profit based on the regular research and analysis undertaken by A for the Company. | Detailed Reasoning - Turnover: With the exception of the 20YY income year, the turnover of the Company from the sale of shares is typically significant. | Detailed Reasoning - Other factors: Other factors that indicate that the Company is carrying on a business of share trading include: • the Company is clearly operating to a long-established trading plan and keeps appropriate business records of its trades; • the Company accounts for the shares it purchases as inventory and records its sales on a gross basis (as reflected in its financial statements); and • the Company's controlling mind (A) has no other full-time occupation. | Detailed Reasoning - Conclusion: Considering the totality of the facts and circumstances, the Company's activities in the 20YY and 20YY income years (like each of the preceding income years) amounted to the carrying on of a business of share trading and the shares it held during that period were trading stock under Division 70. As a consequence, any profit derived by the Company from the sale of its shares was assessable as ordinary income under section 6-5 and any loss derived by the Company from the sale of its shares, as well as any costs associated with its share trading activities, were deductible expenses under section 8-1. 1 The fees generated by the Company were derived as a consequence of having provided consultancy services to the CEO of a listed xxx company. 2 The Company was out of time to amend its assessment for the 20YY income year at the time of recognising this error.