Private ruling: Am I in business as a share trader?
Published: March 2014
Ruling period: Income year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you carrying on a business as a share trader? | A1: Yes.

Relevant facts and circumstances: During the income year you made a number of share transactions, a summary of which follows: Income year 20xx No. of purchases Around 50 No. of sales Around 50 Total value of purchases Approximately $15 million Average purchase value Approximately $400,000 Total value of sales Approximately $15 million Average value of sales Approximately $400,000 Average holding period (days) Less than 14 days You have invested a substantial amount of capital in your share transactions, and have recently added a high value margin loan facility to support your activity. You trade in only a few X and Y stocks. You use an on-line broker for your trading. You keep records of your share transactions. Your public officer conducts you share trades on your behalf. Your public officer works full time as your employee, however has access to an office maintained specifically for conducting share transactions.

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: There are two possible scenarios as to how gains and losses from share trading activities can be treated for income tax purposes. These scenarios and their consequences are as follows: | Detailed Reasoning - 1. Business Income: In this scenario your share trading activities would be considered to constitute the carrying on of a business. Your shares would be regarded as trading stock and any gains or losses would be included in your assessable income. Your income would be ordinary income and assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), while your expenses would be deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - 2. Investment Income: In this situation your share trading activities would be regarded as investing. Your shares would be considered capital gains tax (CGT) assets. Any gains resulting from the disposal of shares would be a capital gain. Any losses sustained on the disposal of your shares would be a capital loss. Your income would be statutory income and assessable under section 102-5 of the ITAA 1997, while a loss would be deductible under section 102-10 of the ITAA 1997. To determine which of these treatments applies to your situation it is necessary to make a determination of whether or not your share trading activities amount to the carrying on of a business. Whether or not a person is carrying on a business is a question of fact, not a question of law. The determination of whether or not a business is being carried on is generally a process of weighing up all of the relevant indicators within the context of a given situation. No one indicator determines whether or not a business is being carried on. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) lists the following indicators as relevant in determining if a business is being carried on: • Whether the activity has a significant commercial purpose or character, • Whether the taxpayer has more than an intention to engage in business, • Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity, • Whether there is repetition and regularity of the activity, • Whether the activity is of the same kind that is carried on in a similar manner to that of the ordinary trade in that line of business, • Whether the activity is planned, organised and carried out in a business-like manner, • The size, scale and permanency of the activity, • Whether the activity is better described as a hobby, a form of recreation or a sporting activity. In the case of share trading repetition and regularity are considered to be important indicators on whether or not a business is being carried on, with the size and scale of the activity being supporting factors. In your case you have carried out around 50 purchase transactions and around 50 sale transactions during the income year. This is a total of around 100 transactions, which is approximately two transactions per week. Your share holding period is on average less than two weeks. The scale of your share trading activities is significant in that your share purchases amounted to approximately $15 million, while you sold shares to the value of approximately $15 million. This is a significant scale of trading and would be considered to be at a commercial level. These figures are considered to be beyond mere passive capital investment, and support that a business of share trading was carried on. Your short holding periods, level of repetition and regularity as well as the scale of your transactions all support that you were carrying on a business as a share trader during the income year. 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 accounted for on revenue account.