Private ruling: Am I in business as a share trader
Published: February 2012
Ruling period: Year ended 30 June 2008. | Year ended 30 June 2009.
Date scheme commenced: 1 July 2007.

Ruling: Q1: For the year ended 30 June 2008, were you carrying on a business of share trading? | A1:  | Q2: For the year ended 30 June 2009, were you carrying on a business of share trading? | A2:  | Q3:  | A4: 


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 70-10 and | Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision: Detailed Reasoning - Question 1 and Question 2: Summary For the year ended 30 June 2008 and 30 June 2009 you were not carrying on a business of share trading. Detailed reasoning Fundamental to determining whether or not a person is in the business of share trading is whether or not the person is the legal owner of the shares that are being bought and sold. The shares that are bought and sold through the investment accounts are owned by the custodian. You invested with your managed investment firm with the expectation of making an investment return. As a part of your investment objectives and goals you signed up for the upgraded service offered by your managed investment firm which involved the use of certain investment accounts. The use of investment accounts as an investment choice involved the concept of you being the beneficial owner of the shares bought and sold in your investment accounts. This introduced the idea that the shares are held on trust for you. Beneficial ownership of an asset arises when an asset is owned by one person, (in this case the custodian) and they have a duty to use it on behalf of another, (in this case you); one person holds the asset as trustee for another. The use of certain investment accounts meant that the investment managers (apart from adhering to the investment rules of the investment account) had full decision-making authority for investments and transactions in each of your investment accounts. To summarize, you are an investor with the managed fund, who have then made investment decisions on your behalf. | Detailed Reasoning - Question 3 and Question 4: For the year ended 30 June 2008 and 30 June 2009, the losses from your involvement in certain investment accounts operated by your managed investment firm will not be assessed on revenue account. You are an investor; therefore your losses will be on capital account.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Question 3: For the year ended 30 June 2008, will the losses from your involvement in certain investment accounts operated by a certain managed investment firm be assessed on revenue account? | Question 4: For the year ended 30 June 2009, will the losses from your involvement in certain investment accounts operated by a certain managed investment firm be assessed on revenue account? | Relevant facts: Sometime in 2006, your spouse met with a representative of your managed investment firm to discuss your and their own investment objectives and the possibility of switching some of your investments to a higher level investment service and certain investment accounts were you retained beneficial ownership of the shares that were bought and sold. | Just prior to commencing the new investment products you had a substantial amount in your holdings of cash and securities, of which listed securities had a substantial value (and were later transferred to your managed investment firm's owned and appointed custodian, a certain company (custodian)). | Cash injections totalling a substantial amount were progressively made to the investment account operators. | Unlisted securities of a substantial amount were not transferred to the custodian and you have maintained these on capital account. | You completed various application forms with your managed investment firm agreeing to certain terms and conditions including the authorisation to transfer your existing CHESS Sponsored holdings to the custodian. | Later in 2007, you transferred your listed equities worth a substantial amount to the custodian. | Later again in 2007, you sold your existing managed fund investments and transferred the proceeds together with most of your existing cash deposits to the upgraded financial service, with a substantial amount of funds then allocated during the year ended 30 June 2008, to a number of discretionary portfolios within the investment accounts. | The shares bought and sold in the investment accounts are not shares owned by you personally, they are owned by the custodian. | After receiving and analysing the investment account reports for the year ended 30 June 2008, you became alarmed at the trading results achieved by the investment account operators and verbally communicated your concerns to the your managed investment firm via your spouse. | On receipt of the investment account reports for the quarter ended 31 December 2008, you decided to close the investment accounts and the underlying upgraded investment service account. | For the year ended 30 June 2008 and 30 June 2009 the investment accounts achieved a considerable net loss. | During the period between the initial investment in each investment account and when the accounts were closed an extremely large number of buy and sell transactions took place. | The fund pool in your investment accounts was kept quite separate from your other investments. Even though you had the ability to transfer stock 'in specie' without charge out of your investment accounts, this did not occur, (until the accounts were closed) despite most of the investment accounts portfolios holding the same securities as were held directly by you. | You are not seeking clarification of the transactions in your directly held portfolio as these have and always will be reported on a CGT basis. | Your application for a private binding ruling refers only to the investment accounts for the time that it was in existence. | Stock transferred from the investment accounts 'in specie' on closure of the investment accounts are now held as direct investments and reported on a CGT basis. | You have included a number of documents that are to be read with and form part of the scheme for the purposes of this private binding ruling: