Private ruling: Am I in business - share trading
Published: March 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to claim revenue losses from buying and selling shares under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Whether or not a person is carrying on a business is a question of fact and degree and is determined on a year to year basis. Taxation Ruling TR 97/11 provides that the following factors are relevant considerations in determining whether a business exists: (a) the nature of the activities and whether they had the purpose of profit-making (b) the complexity and magnitude of the undertaking (c) an intention to engage in trade regularly, routinely or systematically (d) operating in a business-like manner and the degree of sophistication involved (e) whether any profit/loss was regarded as arising from a discernible pattern of trading (f) the volume of the taxpayer's operations and the amount of capital employed by him The following factors are particularly relevant in respect of share traders (a) repetition and regularity in the buying and selling of shares (b) turnover (c) whether the taxpayer was operating to a plan, setting budgets and targets, keeping records (d) maintenance of an office (e) accounting for the share transactions on a gross receipts basis (f) whether the taxpayer was engaged in another full-time profession. In your case, you allocated sufficient capital for your trading account and your monthly transactions were significant, averaging more than X transactions per month. The average time that shares were held was X months. The magnitude of the trading, the amount of capital employed and the repetition in buying and selling shares are all factors which would point towards the existence of a business in the year in question. You also devoted significant time to your share trading. Although your activities did not appear to have a high degree of sophistication in the way the transactions were conducted or in the use of risk minimisation strategies, the regularity of the share trades, the amount of capital employed and your clear intention to trade for short-term gains were more significant than factors weighing against the existence of a share trading business. The general impression gained from the facts provided is that you were carrying on a business of share trading in the 20XX-XX financial year. Therefore, your loss from your share trading activity can be offset against your other income.

Relevant facts: You bought and sold shares during the 20XX-XX income year with the intention of making a profit. | During this period your trading activities were regular and repetitive and the amount of capital employed was significant. | You borrowed funds secured against your assets to carry on these activities. | You are employed full-time but you study the local and international stock market morning and night and you research company announcements. You purchase a mixture of share types, including mining and blue chip shares. | You estimated that you spend at least X hours per week on share activities. | You use an online broker and you keep detailed records of every buy and sell transaction. | The strategy you used in previous years was to buy and sell within a short period with the single intention of making a small profit to improve your cash liquidity. | You estimate that the average length of time you hold shares is usually three months, but this year you had to hold on to the some of the stock longer hoping for the stock to turn. While you were holding those shares you carried on extra trades trying to make back the loss. | You incurred a loss from your share activities in the 20XX-XX income year.