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23 Apr 12 Business of share trading carried on – Mehta

The Administrative Appeals Tribunal has decided that a taxpayer’s share trading activities went beyond the pursuit of a mere pastime or hobby, and amounted to a business of trading in shares. The Tribunal upheld the taxpayer’s objection and remitted the penalty imposed by the Commissioner.

The taxpayer had sold an investment property. He then decided to operate as a trader in shares. To this end, he reduced his hours of work in his primary occupation from 70 to 80 hours a week to 35-40, and made a conscious decision to spend 35-40 hours per week on share trading.

Apart from capital of his own of $150,000, the taxpayer borrowed the sum of $500,000 as a margin loan.

The taxpayer also set up a dedicated office at his home, upgraded his computer, and purchased an electronic whiteboard and other office furniture such as a desk, chair and filing cabinets. He also invested in accounting software.

The taxpayer gave evidence that although that he did not carry out activities such as charting or noting trend lines and cyclic performance of stocks, he had availed himself of advice that various persons or bodies were offering, and used and applied their analysis to influence the shares he either bought or sold.

There was a dearth of records pertaining to his share trading activities, but the taxpayer explained that he relied upon the analyses of others, although there was no other documentation save a share trading sales journal. This document could be reproduced from bank records but, as the taxpayer pointed out, it was not necessary for him to maintain his own records of trade when he could download them from the bank.

The Commissioner conceded that the taxpayer’s share purchases and sales were for substantial amounts relative to the value of his income and assets.

As Hill J observed, in FCT v Radnor Pty Ltd (1991) 102 ALR 187 at 205:

“Ultimately, the question whether the respondent was carrying on a business of dealing in shares is a question of fact and degree, a question of impression.”

In this case, the Tribunal was satisfied on the evidence that the taxpayer’s activities amounted to the carrying on of a business in the relevant tax year.

Re Mehta and FCT [2012] AATA 208 (13 April 2012).


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