In a recent case, a taxpayer undertook significant trades on the stock exchange and made losses, but was still found to be a 'share investor', rather than a share trader, meaning she could not deduct her losses against her other income (i.e., her losses were 'capital losses' that can only be offset against capital gains).
The taxpayer (who otherwise worked as a child care educator and earned approximately $40,000 in wages) started trading shares in July 2010, utilising her (and her husband’s) savings of approximately $60,000 and a margin loan of initially $40,000.
During the 2011 income year, she made:
- 71 purchases to a value of $379,630; and
- 37 sales to a value of $215,019.
She made a loss on her share transactions during the 2011 income year to the order of $20,000, and she was seeking to claim that as a deduction.
The Senior Member of the AAT considered the following factors in deciding that the taxpayer was not a share trader.
Factors in favour:
- the turnover was substantial, particularly having regard to her wages; and
- the taxpayer maintained a home office for the purpose of undertaking the share transactions.
- the share transactions were not regularly and systematically carried out throughout the 2011 income year – the bulk of the transactions took place in the first 6 months of the 2011 income year, with only 10 transactions of approximately $70,000 in the second half of the financial year.
- the activities were very basic and lacked sophistication to constitute a share trading business;
- there was no demonstrated pattern of trading, although it was accepted there was a business plan even before she later produced written evidence of this; and
- she had no skills or experience or prior interest in shares.
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