Private ruling: Business - share trading
Published: December 2013
Ruling period: 1 July 2013 to 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you carrying on a business of share trading? | A1: Yes

Relevant facts and circumstances: You use a substantial borrowed capital base to invest in the share market. You carry out your share trading activity from your home office. You undertake your own research and analysis of the stock market. You have strategies and plans in place. You maintain records of your share trading activity. You spend time on your share trading activities each week.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 44 | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 Division 70

Reasons for decision: Summary: Generally, there are two possible ways share trading activities may be treated for income tax purposes. 1. Business Income In this scenario you would be a share trader, your shares are trading stock, income from sales are included in your assessable income under section 6-5 of the ITAA 1997, and expenses incurred to acquire the shares are 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 (ITAA 1936) or the ITAA 1997. 2. Investment income In this scenario, you would be regarded as a share investor. Your shares are treated as CGT assets, any gains from the disposal of the shares are included in your assessable income as a capital gain (section 102-5 of the ITAA 1997) and any losses sustained from the disposals will be a capital loss (section 102-10 of the ITAA 1997). Dividend income is assessable under section 44 of the ITAA 1936 irrespective of which of the above scenarios applies. | Detailed Reasoning - Carrying on a business of share trading: 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 a taxpayer's 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. 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. Having regard to the indicators contained in TR 97/11, you are considered to be carrying on a business of share trading (albeit on a part-time basis) because: · the buying and selling of shares is an activity with a goal of making a profit, which gives the activity a commercial purpose · the magnitude of your transactions is substantial and you hold your shares for relatively short periods trying to achieve short term gains · you have a systematic and planned approach to your share trading, and · you maintain an office and maintain adequate records for the activity.