The Federal Court has held that a taxpayer was not entitled to a deduction under s 8-1 of the ITAA 1997 for share losses exceeding $11m (in 62 purchases) and legal fees of just over $500,000.
The facts were these.
- Between 2008 and 2014 the taxpayer expended many millions of dollars on share purchases, typically based on the advice of a firm of stockbrokers and financial advisers.
- In the 2014-15 income year, he made a loss of $11.85m, when shares he had acquired in Nexus Energy between March 2012 and May 2014 were compulsorily transferred and cancelled by the administrators of Nexus.
- The taxpayer incurred legal fees of just over $500,000 in fighting the administrators.
The taxpayer contended that the Nexus losses and legal fees were deductible under both limbs of s 8-1 of the ITAA 1997. He argued that they were incurred in a “business operation or commercial transaction” of a kind contemplated by the Myer principle and that he was carrying on a business” of “dealing” in the Nexus shares for profit. The taxpayer accepted that he was not carrying on a business of share trading generally.
The Court found that the Nexus shares were not acquired as part of a “business operation or commercial transaction” in terms of the Myer principle, even though the taxpayer intended to obtain a profit or gain from acquiring those shares. The fact that investors acquire shares in the hope of making a profit (as well as receiving dividends) did not necessarily make the purchase of the shares a “business operation or commercial transaction”.
The Court then concluded that the taxpayer was not engaged in a business of “dealing” in Nexus shares. The Court was not satisfied that the shares were held on revenue account in a business-like manner, in the way one might ordinarily expect if such a business had in fact been carried on.
The Taxpayer has, since, appealed this decision to the Full Federal Court (see related Tax Technical Article).
(Greigv FCT [2018] FCA 1084, Federal Court, Thawley J, 20 July 2018.)
Comprehension questions (answers available)
- Did the taxpayer suffer losses of over $11m on the cancellation of shares he purchased in 62 acquisitions between 2012 and 2014?
- Did the taxpayer contend that he ought be able to deduct the loss, has he would have been taxable on a gain (had he made one) on the basis that it was a he acquired them with the intention of making a profit, as part of a business operation or commercial transaction (that is, under the 2nd limb in the Myer Emporium case)?
- Was it held that he bought the shares as part of a “business operation or commercial transaction”?
