Full Federal Court finds Share Losses Deductible in Greig v FCT
The Full Federal Court by a majority has ruled that share losses can be deductable under section 8-1 of the Income Tax Assessment Act 1997.
In Greig v FCT the taxpayer argued that their share losses of $11.85 million between 2014 and 2015 and $507,198 in legal fees were deductible as they were incurred in a business operation or commercial transaction and that the taxpayer was carrying on a business in dealing with the specific shares in question for profit.
Initially, at first instance the court disagreed finding that the deducted shares totalling to $11.85 million and legal fees of $507,198 were not deductible as they were not in a business operation or commercial transaction and that the loses incurred were not producing an assessable income. Also, that the taxpayer was not in a business of dealing with shares and therefore, the amount was not deductible.
The taxpayer, Mr Greig appealed the decision in which majority of appellate judges disagreed with the trial judge’s decision making. The Full Federal Court found that the taxpayer acquired the shares as a businessperson would have based on the advice of stockbrokers and financial planners as well as using their own business expertise as a managing director to gather information and monitor the value of their shares.
According to Justice Stewart the actions and activities undertaken by Mr Greig are claimed to be “entirely businesslike,” and that the taxpayer indeed acted as a businessperson would to obtain a profit from the shares, therefore, acquiring the shares in a “business operation or commercial transaction” satisfying that the taxpayer was carrying on the business in dealing with shares in exchange for profit.
In making the decision the following were taken into account:
- the existence of a profit-making purposes (versus a hobby)
- nature, size and scale of the activities
- commercial character of the transactions
- repetition and regularity of the activities; and
- whether the activities occurred in a systematic and business-like manner.
The new finding brings a new approach to lodging share losses as deductions in returns, and something for the ATO to consider in future lodgements.