Private ruling: Am I in business? share trader
Published: February 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: For the year were you carrying on a business of share trading contracts for difference (CFD's) in foreign exchange (forex) and forex options? | A1: Yes. | Q2: Do you pass the non-commercial business loss rules (assessable income test) so that you can offset your business loss against your other income such as wages in the current year? | A2: No. | Q3: Will the amount incurred by you for the share trading course form part of your deferred non-commercial business loss? | A3: No. | Q4: Will the amounts incurred by you for undertaking a number of share trading courses form a part of your deferred non-commercial business loss? | A4: Yes.

Relevant facts and circumstances: You commenced trading activities. The trading activities consisted of the following: 1. Trading overseas securities and foreign exchange trading through a broker. The volume of trading through this account is high. 2. Foreign exchange options trading is conducted through another broker. · You undertook intensive training courses as part of your trading activities. · You believe you are carrying on business as a share trader based on the following 1. The nature of activity and purpose of profit making. · Even though you incurred trading losses your intention was to generate a profit from trading various securities. The very nature of option trading and foreign exchange trading supports this as these securities are not held for long periods of time. 2. Repetition You have undertaken frequent trades since commencing your business. 3. Business-like manner of operation and record keeping. · Record keeping - you have kept detailed records and spreadsheets of your trading activities outlining the profit/loss on trading activity. · Training and development - you have undertaken training courses which have given you the knowledge and fundamentals of running a trading business. · Trading plan - you have a trading plan regarding value investing and the monthly investments that you make follows this plan. · Independent research - you undertake your own independent research into the securities that you trade. · Market conditions - you trade in all market conditions irrespective if the market is going up, down or sideways as you seek opportunities in all markets and you constantly seek opportunities for profits in all market instruments at any point in time. · Time spent on business - you spent a number of hours per week on trading related activities, which include, but are not limited to trading, reading, chart analysis, general market sentiment analysis and record keeping. This time does not include the time spent attending courses. · Home office - a home office is maintained for the business. · Plant and Equipment - you utilise your iPod and mobile phone to undertake research and to trade securities. Even though you have a full time position, the nature of your share trading business is such that you need to be able to access your different trading platforms and perform research on a regular basis. You also subscribe to charting software used to help identify trends and identify potential opportunities as well as to calculate projected returns and movements. 4. Volume of trading · The volume of trading since the business commenced is high and is indicative of a trading business. 5. Amount of capital injected · You have taken out a loan with a financial institution to assist with providing an injection of capital to commence your business. You have also injected an amount of capital into one of the trading platform.

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 15-15, | Income Tax Assessment Act 1997 Section 25-40, | Income Tax Assessment Act 1997 Division 35, | Income Tax Assessment Act 1997 Section 35-5, | Income Tax Assessment Act 1997 Section 35-10, | Income Tax Assessment Act 1997 Section 35-30, | Income Tax Assessment Act 1997 Section 36-10 , | Income Tax Assessment Act 1997 Section 36-15, | Income Tax Assessment Act 1997 Section 118-20 and | Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision: Summary: For the current year you are carrying on a business of trading contracts for difference (CFD's) in forex and forex options. | Detailed Reasoning - Detailed reasoning: Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for difference (TR 2005/15) outlines the taxation treatment of CFD's. A CFD is a form of cash settled derivative that allows investors to take risks on movements in the price of a subject matter (the 'underlying') without ownership of the underlying. TR 2005/15 states where this type of trading is part of the carrying on of a business, the gains from the transactions will be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and the losses will be deductible under section 8-1 of the ITAA 1997. TR 2005/15 also states that, if the trading activities constitute the carrying out of a profit making undertaking or plan, but do not constitute a business, the net gain or net loss from trading will be assessable under section 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997) or deductible under section 25-40 of the ITAA 1997. Section 15-15 of the ITAA 1997 does not apply to a profit that is assessable as ordinary income under section 6-5 of the ITAA 1997. Section 25-40 of the ITAA 1997 does not apply to a loss arising from a profit making undertaking or plan unless any profit from that plan would have been included in your assessable income under section 15-15 of the ITAA 1997. Whether or not particular activities constitute a business is a question of fact and degree. A process is undertaken where all the facts of a situation are applied to the relevant indicators, taking into account the weight and influence of the facts within the context of that particular situation. The Commissioner's view about carrying on a business is found in Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production (TR 97/11). The ruling lists the following indicators as being relevant when determining whether or not a business is being carried on: · whether the activity has a significant commercial purpose or character · whether the taxpayer has more than just 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 and 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 on in a businesslike manner such that it is directed at making a profit · 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 your case we consider you were carrying on business of CFD trading for the following reasons: · Over the period, you displayed regularity and repetition in trading on a short term basis, which is a favourable indicator of carrying on a business. · It follows that the relevant indicators of a business such as turnover, amount of capital employed, the complexity and magnitude of the undertaking, operating in a business like manner and the degree of sophistication involved were satisfied. · This impression gained is supported by the volume of your trading activity. Trades were conducted across the financial year. To conclude, you are considered to have been carrying on a business of CFD trading. | Summary: You do not pass the non-commercial business loss rules (assessable income test) allowing you to offset your business loss against your other income such as wages in the income year. | Detailed Reasoning - Detailed reasoning: As it has been determined that you are carrying on a business in CFD trading, the income from the activities is assessable under section 6-5 of the ITAA 1997 and losses are deductible under section 8-1 of the ITAA 1997. It follows that sections 15-15 and 25-40 of the ITAA 1997 do not apply to your situation. Furthermore, because you were carrying on a business, the non-commercial loss rules in Division 35 of the ITAA 1997 must be considered in relation to your circumstances. You satisfy the income requirement as your income for non-commercial loss purposes was less than $250,000. However, you do not satisfy of the assessable income test. Your assessable income from CFD trading was less than $20,000. Therefore, you do not satisfy the assessable income test. Accordingly, your loss is deferred and carried forward to the following year, if you make a gain from CFD trading in that year, the carried forward loss can be used to offset the gain. | Summary: The amount incurred by you for the share trading course earlier in the period will not form part of your deferred non-commercial business loss. | Detailed Reasoning - Detailed reasoning: Taxation Ruling TR 98/9 Income tax: deductibility of self education expenses incurred by an employee or a person in business (TR 98/9) addresses the deductibility of self education expenses incurred by an employee or a person in business, paragraph 15 states that "the fact the study will enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment) is not a sufficient basis in itself for self education expenses to be deductible. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income." As you undertook a course in prior to commencing, the expense is considered to be incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. As a result, the amount incurred in undertaking the course will not form a part of your deferred non-commercial business loss. | Summary: Some amounts incurred by you for undertaking some share trading courses, form a part of your deferred non-commercial business loss. | Detailed Reasoning - Reasons for decision: Paragraphs 12 to 14 of TR 98/9 Address the deductibility of self education expenses incurred by an employee or a person in business. It states "Self education expenses are deductible under Section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income earning activities. If a taxpayer's income earning activities are based on the exercise of a skill or some specific knowledge and the subject of self education enables the taxpayer to maintain or improve that skill or knowledge, the self education expenses are allowable as a deduction. If the study of a subject of self education objectively leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income-earning activities in the future, the self education expenses are allowable as a deduction." As the courses you undertook are likely to lead to an increase in your income earning activities, the courses will form a part of your of your deferred non-commercial business loss.

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