Private ruling: Share trading
Published: November 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for the expenses associated with your share trading activities? | A1: No.

Relevant facts and circumstances: You trade shares and complete bookkeeping, research, study and analysis of the ASX. You have invested capital of approximately $X. You execute less than 10 trades per month. The volume of each transaction varies You spend a number hours per week on your share trading activities. You hold shares for between a number of days and a number of years. You are working on a business plan but do not have a formal written document to date. You do not hold any other type of employment.

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. 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: • the repetition and regularity of your activities is not sufficient to be considered a business, • your activities lack planning and organisation and you do not have a business plan, • you hold shares from anywhere between a number of days and a number of years which indicates an intention of making a least a portion of your gains over the medium to long term, and • the volume/value of each transaction is less than what would be expected of a share trader. As you are not carrying on a business of share trading you are a share investor. Therefore, you are not entitled to a deduction for expenses associated with your activities. 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.