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ATO Interpretative Decision

ATO ID 2001/745 (Withdrawn)

Income Tax
Income and Deductions - Securities and Commodities Trading

Attention This ATO ID is withdrawn. The issue addressed in the ATO ID is covered by Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 25 January 2018.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Are losses incurred in securities and commodities trading, necessarily incurred in carrying on a business for the purposes of producing assessable income and therefore allowable income tax deductions under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).


Yes. Losses incurred are allowable deductions under section 8-1 of the ITAA 1997 as the taxpayer is carrying on a business as a securities and commodities trader.


Since resigning from full time employment the taxpayer, an individual, has repeatedly traded in securities and commodities as well as completing an intensive share trading course. The taxpayer has a trading plan and conducts extensive research and analysis using a variety of resources including the internet, libraries, computer software programs, and screening techniques. The taxpayer keeps monthly summaries of the trades, annual financial reports and all buy and sell contracts have been retained. The trades are accounted for on a gross receipts basis. Whilst the trading activities have not resulted in any profits, sufficient funds are available to the taxpayer to keep the activity on going for an indefinite period.

Reasons for Decision

For losses incurred to be allowable deductions the activities of the taxpayer must amount to the carrying on of a business. Once it has been established that the taxpayer's activities do amount to the carrying on of a business, any losses, for which a deduction is sought, must have been necessarily incurred in carrying on that business activity.

Whether the trading activities of the taxpayer amounts to the carrying on of a business is dependent on the facts provided ( Federal Commissioner of Taxation v. Radnor Pty Ltd (1991) 22 ATR 344; 91 ATC 4689).

Whilst the existence of a business or otherwise is a question of fact, a number of factors/indicators have emerged from case law which are considered relevant in considering this question. In Taxation Ruling TR 97/11 the Commissioner has discussed the relevance of these factors in considering whether an activity amounts to the carrying on of a business. These factors were brought together and relied upon by the Administrative Appeals Tribunal when reaching a decision in Case X86 90 ATC 621; (1990) 21 ATR 3747, and subsequently applied in Shields v. Deputy Federal Commissioner of Taxation 99 ATC 2037 at 2043-2044; (1999) 41 ATR 1042 at 1047-1048 (the Shields Case ).

The relevant indicators include but are not necessarily limited to:

 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 or loss is regarded as arising from a discernible pattern of trading;
 the volume of the taxpayer's operation and the amount of capital employed by him;
 and more particularly in respect of share traders:
 repetition and regularity in the buying and selling of shares;
 whether the taxpayer is operating to a plan, setting budgets and targets, keeping records;
 maintenance of an office;
 accounting for the share transactions on a gross receipts basis; and
 whether the taxpayer is engaged in another full time occupation.

The tests of whether a securities and commodities trading business is being carried on is based on the subjective purposes and the objective evidence provided. It is made by regarding the nature of the activities and the purposes for engaging in them. A determination is made on the general impression gain from various indicators of carrying on a business and the individual circumstances of the taxpayer ( Martin v. FC of T (1952) 10 ATD 37).

The circumstances of the taxpayer are similar to those in the Shields Case where the activity was conducted in a business like manner. The taxpayer's system of trading is complex and requires a degree of knowledge and skill. The system involves the use of scientific calculations and trading models using skills and knowledge gained from an intensive training course. Other influencing factors include the capital invested, the availability of funds to continue trading and the business records maintained.

Date of decision: 30 July 2001

Legislative references:
Income Tax Assessment Act 1997
   section 8-1

Case references:
Case X86
   90 ATC 621
   (1990) 21 ATR 3747

Federal Commissioner of Taxation v. Radnor Pty Ltd
   (1991) 22 ATR 344
   91 ATC 4689
   (1991) 102 ALR 187

FC of T v. Martin
   (1952) 10 ATD 37

Shields v. Deputy Federal Commissioner of Taxation
   99 ATC 2037
   (1999) 41 ATR 1042

Related Public Rulings (including Determinations)
TR 97/11

Related ATO Interpretative Decisions
ATO ID 2001/746

Business income
Carrying on a business
Hobby vs business
Securities as trading stock
Trading stock

Siebel/TDMS reference number: DW223815; 1-DKWZGLD

Business line: Private Groups and High Wealth Individuals

Date of publication: 30 November 2001
Date reviewed: 10 April 2014

ISSN: 1445-2782

ATO ID 2001/745 (Withdrawn) history   Top  
   Date   Version 
   30 July 2001   Original statement   
 You are here ®  25 January 2018   Withdrawn   


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