Unsophisticated share trading activities not a “business”

The AAT has held that a taxpayer’s share trading activities were not a “business” because they were unsophisticated and not carried out in a business-like manner. Consequently, the taxpayer was not entitled to claim or carry forward existing losses in the relevant income years.

The taxpayer worked in the aviation industry and also traded shares on the ASX. He generally placed orders on his days off and most of the transactions were carried out using a computer situated in a home office set up for trading. For research, he relied on readily available sources and the internet generally. He did not utilise the services of a stockbroker or other financial advisor. His stated goal in preparing a share trading plan was to obtain a level of income after retirement. His business plan was set out in a half-page document and he kept few records of trading or other associated activities. Following an audit, the Commissioner determined that the taxpayer’s share trading activities were not a “business”, with the consequence that he was not entitled to claim or carry forward existing losses he had initially claimed in the 2015, 2016 and 2017 income years. After the Commissioner disallowed his objection, the taxpayer applied to the AAT for a review of the objection decision.

The AAT said the taxpayer’s share trading was infrequent and characterised by numerous periods of no trading. There was also no established system and the trading was irregular. This pointed to the taxpayer being involved in a series of individual transactions on a speculative basis rather than as a share trader conducting a business. As the taxpayer was working full-time in the aviation industry for the majority of the relevant period, the overall impression was that the share trading activities were very much a side issue which did not occupy a significant amount of the taxpayer’s time except for a limited period when trading became more frequent and extensive.

In addition, the AAT found the taxpayer did not arrange his share trading activities in a business-like manner; he did not incorporate a trading vehicle or register a business name and there were few records kept of the trading or other associated activities. Further, the taxpayer did not engage professional assistance from a stockbroker or financial planner despite having no qualifications in these areas. His written business plan was unsophisticated and contained very little detail.

Hill v FC of T [2019] AATA 1723, P Britten-Jones (Deputy President) and S Griffiths (Member), Adelaide, 8 July 2019.