South Africa: Share Trading - Consideration Of Factors Indicative Of A Business Being Conducted

Last Updated: 18 November 2013
Article by Nicole Paulsen

The issue of share trading and whether the profits or the losses derived therefrom should be treated on capitalor revenue account for tax purposes, has been a contentious issue in South African tax law for quite some time.

For South African income tax purposes, the general rule in determining the nature of the proceeds or the losses derived from share market activities is to determine the intention with which the shares were acquired and held by the taxpayer.

Accordingly, South African tax law gives effect to the intention of the taxpayer in order to determine whether the proceeds or the losses derived from share market activities should be treated on capital or revenue account.

In the recent Australian case of Hartley and Commissioner of Taxation [2013] AATA 601, the Australian Administrative Appeals Tribunal (Appeals Tribunal) was asked to determine whether the applicant conducted the business of share trading in order to claim deductions for the relevant years of assessment or whether the applicant was in fact a share investor and accordingly did not carry on the business of share trading.

The facts of the case were that the applicant was, at all relevant times, a full-time employee of the council, a position which occupied him for 38 hours a week. For many years the applicant was also actively involved in the share market and according to his testimony, that activity occupied him for about 15 hours per week, which activity was mainly conducted during his ordinary working day.

Based on the applicant's assertion that his share market activities constituted a business for tax purposes, the applicant, through his tax agent, lodged income tax returns wherein he claimed significant amounts as deductions for each of the three tax years ending 30 June 2009, 2010 and 2011. These deductions were claimed by the applicant for the losses that he suffered as a result of his participation in the share market activities.

However, the Commissioner of Taxation (Commissioner) argued that the applicant was not entitled to claim the deductions for the losses suffered, due to the fact that the applicant was a share investor or possibly a speculator and therefore the shares should be treated as assets only for purposes of capital gains tax.

The Commissioner therefore conducted an audit on the tax affairs of the applicant for the three years in question and made a determination that the applicant was a share investor and was not carrying on the business of share trading. The Commissioner subsequently imposed an administrative penalty on the applicant for the 2009 year of assessment, based on a lack of reasonable care. The applicant lodged an objection against the notices of assessment and the shortfall penalty imposed by the Commisioner and the Commissioner subsequently issued the objection decision that allowed the objection in part by reducing the penalty shortfall to nil for the 2009 year of assessment.

Not being satisfied with the Commissioner's decision, the applicant applied to the Appeals Tribunal for a review of the objection decision.

The essential issue before the Appeals Tribunal was whether or not the applicant was carrying on the business of a share trader for income tax purposes.

In determining the issue at hand, the Appeals Tribunal held that the question as to whether someone is engaged in a business is a question of fact, the answer of which depends on the impression which the decision-maker forms having regard to all the surrounding circumstances.

The Appeals Tribunal further held that the more usual approach and the one adopted in the income tax context, is to consider a number of accepted factors which point in one direction or the other. In summarising the objective factors that should be considered in determining the existence of a business for income tax purposes, the Appeals Tribunal referred specifically to the factors as listed by the Deputy President Todd in AAT Case 6, 297 (1990) 21 ATR 3747, which was cited with approval in the case of Shields and Deputy Commissioner of Taxation (1999) 41 ATR 1042 at 1048. The factors to be considered are:

  • The nature of the activities and whether they have the purpose of profit-making.
  • The complexity and magnitude of the undertaking.
  • An intention to engage in trade regularly, routinely or systematically.
  • Operating in a business-like manner and the degree of sophistication involved.
  • Whether any profit/loss is regarded as arising from a discernible pattern of trading.
  • The volume of the taxpayer's operations and the amount of capital employed by him.

In light of the factors set out above, the Appeals Tribunal held that the factors in favour of the applicant's argument was that the turnover in gross terms was quite large, particularly having regard to the applicant's salary which he received by virtue of his employment. The Appeals Tribunal further held that the applicant did in fact maintain an office specifically for the purpose of conducting his share purchase and sale transactions and further maintained records of transactions for the purpose of doing accounting and tax calculations.

On the other hand, the Appeals Tribunal held that there were also a number of factors in favour of the Commissioner's argument. In particular, the Appeals Tribunal held that looking at the totality of the evidence, it could not be said that the applicant's activities demonstrated an intention to trade regularly or routinely. Furthermore, the applicant was engaged in another full-time profession as a council employee and lastly, the operation of the applicant was very simple, lacked any real sophistication and was not consistent with the operation of a business.

The Appeals Tribunal concluded by stating that although the matter was finely balanced, those factors pointing against the existence of a share trading business were more significant than those pointing in favour of the existence of a share trading business.

Accordingly, the applicant's application for a review of the Commissioner's objection decision was dismissed and the Commissioner's objection decision was confirmed.

Based on the discussion set out above, it is clear that the Australian tax authorities, like the South African tax authorities, also determine the nature of proceeds derived from the sale of shares with reference to the taxpayer's intention. However, the factors considered by the Appeals Tribunal in this case, as well as the previously decided case law, is useful in determining the true intention of the taxpayer from an objective point of view.

It would be interesting to see whether the South African tax authorities would adopt a similar set of guidelines to enable one to determine the true intention of the taxpayer, insofar as share market activities are concerned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions