Taxpayer not carrying on a share trading business

21 September 2010

Are you trading in shares? A recent AAT case was ruled in favour of the ATO when it challenged a taxpayer’s assertion that he was carrying on a business of share trading during certain income years. The taxpayer claimed that he had become a share trader from July 2006 on the basis that he started actively dealing and trading in shares for short term profits.

The Tribunal , however, held that the taxpayer was actually an investor by considering the following factors:

• The nature of his activities
• The complexity and magnitude of the undertaking
• Whether there was a discernible pattern of trading
• Whether there was repetition and regularity in the buying and selling of shares
• Whether the taxpayer was operating to a plan and seeking professional advice
• The volume of transactions undertaken.

The tribunal held that the taxpayer was not a share trader and that the share transactions undertaken during relevant income years were taxed on capital account rather than revenue account. It ruled that the taxpayer was merely disposing of shares as a mere realisation or change of investment.

If you’re trading shares and not sure if you’re a trader or an investor for tax purposes, call us in 02 9957 4033 to discuss your taxation position.