Private ruling: Income tax – assessable income – business and professional income – carrying on a business
Date of advice: 31 May 2018
Published: August 2018
Ruling period: Year ending 30 June 201X
Date scheme commenced: 1 July 201X

Ruling: Q1: Are you carrying on a business of share trading for the 201X income tax year? | A1: Yes. | Q2: Are you carrying on a business of cryptocurrency trading for the 201X income tax year? | A2: Yes.

Relevant facts and circumstances: Overview 1. You have a Bachelor’s degree in your relevant field of work. 2. You have professional accreditation in your relevant field of work. 3. You are employed full-time and own a separate business managed by your partner. 4. You have been trading shares for approximately ten years, but do not consider yourself to have been an active trader for all of those years. 5. Throughout the 201X income tax year, you have spent between 10 to 30 hours per week conducting share and cryptocurrency trading. This was in addition to and occasionally during your full-time employment. 6. You have not engaged any financial or relevant professional services in conducting your share or cryptocurrency trading. Share trading 7. You mainly trade in various publicly listed companies. The majority of these trades involve shares from two publicly listed companies. As the shares do not pay dividends, you are not earning any material returns from dividends. 8. You consult trading websites daily and analyse basic trends using chart analysis. 9. You review the financial reports of companies, their business plans and potential risks in investing in a company’s shares. 10. You also review shares to plan their potential value using a number of criteria in light of your knowledge, skill and previous experience in share trading. 11. In the 201X income tax year, you executed at least 200 share trades totalling at or around $XX0,000 AUD. Transactions ranged between 1 and 500,000 shares purchased or sold. 12. You maintain a spreadsheet that records your entire share trading, including a profit and loss chart. 13. Most of your shares do not pay dividends. Cryptocurrency trading 14. You mainly trade in three types of cryptocurrencies across two Digital Currency Exchanges ( DCE ). 15. You have also traded in over twenty other cryptocurrencies, although these are usually short-term purchases and sales during periods of volatility. 16. You do not maintain records of every transaction that occurs, but you record the approximate value of the cryptocurrencies on an ‘AUD in and out’ basis. This is so you can maintain a profit and loss spreadsheet. 17. You research each cryptocurrency before purchasing, as well as consult the above trading website to conduct basic chart analysis. 18. You decide to buy and sell cryptocurrencies based a gut feeling due to the high volatility. 19. For the 201X income tax year, you have executed over 12,000 cryptocurrency trades. 20. The value of those trades totalled more than $XX AUD. 21. A portion of the above trades were conducted in pursuance of a price arbitrage trading strategy: that is, you looked to take advantage of the difference in prices between DCEs in Australia and the United States based on exchange rates. The strategy looked to profit from any differences.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 995-(1)

Reasons for decision: Detailed Reasoning - Applying the law to your circumstances: It must be determined whether you are carrying on a business of share trading for the 201X income tax year. (a) Existence of a profit-making and commercial purpose There is a clear profit-making and commercial purpose. This is because you have utilised your knowledge, skill and experience to: ● review trading websites, ● conduct basic chart analysis, ● plan the potential value of shares in light of thorough researching, and ● track the profit and loss from your share trading. (b) More than a mere intention to engage in business The steps you have taken to profit from share trading indicate more than a mere intention to engage in business. (c) Intention to make a profit or a genuine belief that a profit will be made This intention is inferred from the conduct outlined above and is furthered by the actual steps taken to derive that profit. (d) Size and scale of the activities In the 201X income tax year, you executed at least 200 share trades totalling at or around $XX0,000 AUD. Transactions ranged between 1 and 500,000 shares purchased or sold. While you generally traded in two types of shares, there is a significant volume of shares traded. (e) Repetition and regularity in buying and selling the shares You have a history of buying and selling shares for the previous ten years. As outlined above, you also traded a significant number of shares regularly over the 201X income tax year. As a result, you have demonstrated a repetitive and regular pattern of buying and selling shares. (f) Activities carried out in businesslike manner In determining which shares to buy and later sell, you review financial reports of companies, their business plans and identify potential risks in investing in a company’s shares. You also consult trading websites on a daily basis, as well as deriving basic trends using basic chart analysis. This demonstrates both a combination of skill and previous experience, and a clear methodical approach to your share trading. Given the volume of shares traded, the regularity of transactions, the amount invested, and the methodical approach to your share trading, it is clear that you carry out share trading in a businesslike manner. (g) Turnover You have indicated that the value of the trades for the 201x income tax year is approximately $XX AUD. (h) Plan, budgets or targets, and record-keeping While you do not have any business plan or targets in place, you keep records of all of your transactions in a structured spreadsheet. This includes profit and loss graphs and some share information. (i) Office You do not have a designated office to carry out your share trading activity as you can trade shares online. As highlighted in Re Taxpayer and FCT [2011] AATA 545; (2011) 84 ATR 659, a lack of a physical office will not be determinative that you are not carrying on a business of share trading. (j) Accounting for the share transactions You account for the shares traded on a gross receipt basis because you record all share sales without any deductions. (k) Existing full-time profession You are currently employed on a full-time basis and own a separate business. You have also indicated that you have conducted some of your share trading during your full-time employment, and your book-keeping business is managed by your partner. As a result, this indicator should be attributed with less weight in reaching a conclusion. | Detailed Reasoning - Conclusion: The Commissioner is satisfied that you are carrying on a business of share trading. | Detailed Reasoning - Applying the law to your circumstances: It must be determined whether you are carrying on a business of cryptocurrency trading for the 201X income tax year. (a) Existence of a profit-making and commercial purpose There is a clear profit-making and commercial purpose. This is because you have utilised your knowledge, skill and experience to: ● review trading websites, ● conduct basic chart analysis, ● compare cryptocurrency prices across domestic and foreign DCEs, ● engage in price arbitrage, and ● track the profit and loss from your share trading. (b) More than a mere intention to engage in business The steps you have taken to profit from cryptocurrency trading indicate more than a mere intention to engage in business. (c) Intention to make a profit or a genuine belief that a profit will be made This intention is inferred from the conduct outlined above and is furthered by the actual steps taken to derive that profit. (d) Size and scale of the activities For the 201X income tax year, you executed over 12,000 cryptocurrency transactions totalling at or around $XX Australian dollars. Transactions ranged between 35 and 5000 cryptocurrency units purchased or sold. While you generally traded in three cryptocurrencies, you also traded in over twenty different types of cryptocurrencies during periods of high volatility. (e) Repetition and regularity of the activities In the 201X income tax year, you executed over 12,000 cryptocurrency trades. You have also indicated that spend between 10 to 30 hours per week conducting both share and cryptocurrency trades, which occasionally occurs during your full-time employment. While your cryptocurrency trading originally occurred on a weekly and fortnightly basis, this regularity has increased to trading on a daily to weekly basis. As a result, you have demonstrated a repetitive and regular pattern of trading in cryptocurrency. (f) Activities carried out in businesslike manner You research each cryptocurrency before purchasing, as well as consulting a trading website to conduct basic chart analysis. You have also used more sophisticated strategies to take advantage of cross-border price differences between different DCEs. You benefited from this difference until the prices reached equilibrium. Given the volume of shares traded, the regularity of transactions, the amount invested, and the methodical approach to your cryptocurrency trading, it is clear that you carry out cryptocurrency trading in a businesslike manner. | Detailed Reasoning - Conclusion: The Commissioner is satisfied that you are carrying on a business of cryptocurrency trading.

Reasons for decision: Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines ‘business’ as including: | …any profession, trade, employment, vocation or calling, but does not include occupation as an employee. | There is no definition for ‘carrying on a business’ in either the ITAA 1997 or the Income Tax Assessment Act 1936. | Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? ( TR 97/11 ) provides the Commissioner’s view on the meaning of carrying on a business for primary production and outlines a number of factors developed by courts and tribunals that they have found to be indicative of when a taxpayer is carrying on a business of primary production. These indicators are also applicable to non-primary production activities: | (a) the existence of a profit-making and commercial purpose (Walsh J in Thomas v. Federal Commissioner of Taxation (1972) ATR 165; 72 ATC 4094 held that the ‘existence of a profit-making and commercial purpose’ should be considered in light of the other indicia, as well as any knowledge, previous experience or skill of the taxpayer in the relevant activity); | (b) the taxpayer has more than a mere intention to engage in business; | (c) the existence of an intention to make a profit or a genuine belief that a profit will be made; | (d) the size and scale of the activities; | (e) the repetition and regularity of the activities; and | (f) the activities are carried out in a systematic and organised (ie businesslike) manner usual for that type of business. | Case X86 90 ATC 621 also outlines additional factors that must be considered when determining whether a taxpayer is engaged in carrying on a business of share trading: | (g) the repetition and regularity in buying and selling the shares; | (h) the turnover generated; | (i) whether the taxpayer operated to a plan, set budgets or targets, and kept records; | (j) maintenance of an office (The lack of a ‘place of business’ or ‘office’ will not be determinative that the taxpayer is not carrying on a business: Re Taxpayer and FCT [2011] AATA 545; (2011) 84 ATR 659); | (k) accounting for the share transactions on a gross receipts basis; and, | (l) whether the taxpayer is engaged in another full-time profession. | The above factors must be considered in light of one another, with no single factor being determinative of whether the taxpayer is engaged in carrying on a business. Even where any one factor is not present, this will not necessarily mean that a business is not carried on: Evans v. Federal Commissioner of Taxation (1989) 20 ATR 922. | Whether a business is being carried on for income tax purposes is a question of fact and degree, to be determined objectively on the specific circumstances of the case, weighing the various indicators outlined above against one another: Ferguson v. Federal Commissioner of Taxation (1979) 9 ATR 873.