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Can the taxpayer claim an income tax deduction for a loss from speculative share trading under section 25-40 of the Income Tax Assessment Act 1997 (ITAA1997) where the activity is not carried on as a business?

No. A loss from speculative share trading activity that is not carried on as a business is not an allowable deduction under section 25-40 of the ITAA1997.

The taxpayer purchased speculative shares with the intention of making a profit on resale of the shares.

The shares are in the mining sector and are not dividend paying. The shares were not purchased with the intention of long term holding for capital appreciation or to derive assessable income as dividends or bonus share issues.

The taxpayer made a net loss from buying and selling the speculative shares.

The taxpayer does not believe the share activities constitute carrying on a business.

The taxpayer believes that each individual speculative share transaction is an isolated profit making plan or undertaking.

Generally, section 25-40 of the ITAA1997 allows a deduction for a loss arising from the carrying out of a profit-making undertaking if any profit from that undertaking would be included in the taxpayer's assessable income by section 15-15 of the ITAA1997.

However, there is an important exception to this rule. In accordance with subsection 25-40(2) of the ITAA1997, a loss from a profit-making undertaking is not an allowable deduction if the loss arises in respect of the sale of property acquired on or after 20 September 1985. The term property encompasses not only physical assets but also intangible things such as shares and securities.

As the shares constitute property acquired after 20 September 1985, the loss on the sale of the shares is not an allowable deduction. Rather, the loss from the sale of the shares is dealt with under the capital gains tax provisions.