Private ruling: Am I in business - Share trading
Published: March 2014
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you carrying on a business of share trading? | A1: No

Relevant facts and circumstances: You hold a substantial share portfolio. You do not buy and sell shares with the intention of making short term gains; your portfolio is held with the intention of making gains over the medium to long term. You do not maintain your own investment plans or strategies; rather, you rely on professional advice. You do not maintain an office for your investment activities and are not involved in any detailed management of your investments or the carrying on of any business-like activities.

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

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 not considered to be carrying on a business of share trading because: • you do not buy and sell shares with the intention of making short term profits; you hold your shares for the medium to long term with the intention of making gains over the longer term • while the magnitude of your turnover is substantial you do not buy and sell shares routinely, regularly or systematically • you are not actively involved in the day-to-day management of your share portfolio, relying on advice from your professional advisors, and • you do not maintain an office for your share trading activities or carry on any business-like activities. As you are not carrying on a business of share trading you are a share investor. As a share investor your shares are treated as CGT assets and are held on capital account. Any gains from the disposal of your shares are included in your assessable income as a capital gain and any losses sustained from the disposals will be a capital loss.