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)

  1. Did the taxpayer suffer losses of over $11m on the cancellation of shares he purchased in 62 acquisitions between 2012 and 2014?
  2. 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)?
  3. Was it held that he bought the shares as part of a “business operation or commercial transaction”?


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