1 Were you carrying on a business of share trading?
No, you are a share investor, and your shares are treated as CGT assets. Question 2 Can you disregard the capital gain from the disposal of your Australian shares on the basis that you were a temporary resident? Answer Yes. This ruling applies for the following period : Year ended 30 June 20XX The scheme commences on: 1 July 20XX
You and your spouse were born in foreign country. You and your family moved to Australia under temporary visas. You are currently living in Australia on a temporary bridging visa. You were investing in the Australian share market. You spend less than one hour per week on this activity. You don't have a business plan, nor do you keep records in respect of this activity. You don't possess any qualifications or expertise in respect of this activity. You are not subscribed to any relevant publications or a member of any relevant organisations in respect of this activity.
Income Tax Assessment Act 1997 Section 6-5 Income Tax Assessment Act 1997 Section 102-5 Income Tax Assessment Act 1997 Section 102-10 Income Tax Assessment Act 1997 Subdivision 768-R Income Tax Assessment Act 1997 Section 768-915 Income Tax Assessment Act 1997 Division 855 Income Tax Assessment Act 1997 Subsection 855-10(1) Income Tax Assessment Act 1997 Section 995-1
Question 1 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 your 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 significantly, the activity may no longer constitute the carrying on of a business. Generally, where you carry out business activities for the purpose of earning income from buying and selling shares you are considered to be a share trader. Your shares are treated as trading stock with the income from your sales included in your assessable income under section 6-5 of Income Tax Assessment Act 1997 (ITAA 1997), and the expenses incurred to acquire the shares 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.
However, if you hold your shares for the purpose of earning income from dividends and capital growth, you will be regarded as a share investor. Your shares would be treated as capital gains tax (CGT) assets with any gains from the disposal of the shares included in your assessable income as a capital gain (section 102-5 of the ITAA 1997) and any losses sustained from the disposals would be capital losses (section 102-10 of the ITAA 1997). 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. It should be noted that the principles in this ruling apply equally to all businesses. The indicators are: • Whether the activity has a significant commercial purpose or character, • Whether the taxpayer has more than an intention to engage in business, • Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity, • Whether there is repetition and regularity of the activity,
• Whether the activity is of the same kind that is carried on in a similar manner to that of the ordinary trade in that line of business, • Whether the activity is planned, organised and carried out in a business-like manner, • The size, scale and permanency of the activity, • Whether the activity is better described as a hobby, a form of recreation or a sporting activity. There is also a comprehensive body of case law in respect to share trading activities. This case law has established the following factors as relevant considerations in such cases: the nature of the activities and whether they have the purpose of profit-making the complexity and magnitude of the undertaking an intention to engage in trade regularly, routinely or systematically operating in a business-like manner and the degree of sophistication involved whether any profit/loss is regarded as arising from a discernible pattern of trading the volume of the taxpayer's operations and the amount of capital employed by him, and more particularly in respect of share traders: i. repetition and regularity in the buying and selling of shares ii. turnover
iii. whether the taxpayer is operating to a plan, setting budgets and targets, keeping records iv. maintenance of an office v. accounting for the share transactions on a gross receipt's basis, and vi. whether the taxpayer is engaged in another full-time occupation. Application to your circumstances By applying the overall facts, you provided you are not in the business of trading shares. Specifically, you are regarded as a share investor and your shares are treated as CGT assets. Following TR 97/11 and the comprehensive body of case law in respect to share trading, you do not satisfy relevant factors: In the case of share trading, repetition and regularity are considered to be important indicators on whether or not a business is being carried on, with the size and scale of the activity being supporting factors. In your case, you completed small number of transactions which is an indicator of share investing rather than a business of share trading. For activities to constitute the carrying on of a business, they should be carried on in a similar manner to other businesses in the industry.
• You do not keep records or have an accounting system that records your shares as trading stock, only a bank statement. • You do not have a relevant licence or qualifications. • You do not have a detailed business plan, or a sophisticated trading method. • The size and scale of your activity is small. • There is little repetition and regularity since you only spend one hour per week with this activity. To summarise, it is considered that you were a share investor rather than carrying on a business as a share trader. Question 2 Temporary Resident Section 995-1 of the ITAA 1997 states that you are a temporary resident of Australia if: • you hold a temporary visa granted under the Migration Act 1958 ; • you are not an Australian resident within the meaning of the Social Security Act 1991 ; and • your spouse is not an Australian resident within the meaning of the Social Security Act 1991 . Under the Social Security Act 1991 , an Australian resident is a person who is living in Australia and is an Australian citizen, a permanent visa holder or a protected special category visa holder.
In your case, you and your spouse hold temporary visas (including Bridging visas). Your temporary visas were granted under the Migration Act 1958 and you were not Australian residents within the meaning of the Social Security Act 1991 . Therefore, you were a temporary resident of Australia. Capital gains tax Subdivision 768-R of the ITAA 1997 provides that the foreign source income (apart from income derived from working overseas) and capital gains of a temporary resident are not taxable in Australia. Further, section 768-915 of the ITAA 1997 allows a taxpayer to disregard a capital gain or capital loss they make from a CGT event if they are a temporary resident when, or immediately before, the CGT event happens provided the capital gain or capital loss would have been disregarded under Division 855 of the ITAA 1997 if the taxpayer were a foreign resident at that time. A capital gain or capital loss that a taxpayer makes from a CGT event happening in relation to non-taxable Australian property is disregarded under subsection 855-10(1) of the ITAA 1997 if the taxpayer is a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens.
In your case, you were a temporary resident who disposed of shares in the Australian share market that were non-taxable Australian property and the capital gain or loss you made from the disposal would have been disregarded if you were a foreign resident. Therefore, you can disregard the capital gain you made from the disposal of your shares.