Lucinda Ball has been a successful business woman for over 2 decades. She controls and owns a number of retail stores throughout Australia that sell imported and locally-made womens clothing. In 2017, Lucinda delegated the day-to-day management of her businesses to competent executives. Finding she has extra time on her hands as a result of the delegation, Lucinda decided to turn her mind to investing on the stock market. To this end, in late 2017 she registered with Commsec, one of Australias largest online stockbroking firms. She also arranged a margin loan facility from the Commonwealth Bank (CBA), which allows her to borrow money to invest in shares and to use the share as security for the loan.

By late 2017, Lucinda acquired in her own name a small parcel of shares which cost a total of $50,000 (including stamp duty of $1,000) to purchase. She sold those shares in early 2018 for a profit of $10,000.

Buoyed by her early success, Lucinda decided to borrow $1,000,000 from CBA in early 2018 for the purpose of pursuing a strategy of buying and selling shares of companies in a range of industries that are listed on the Australian Stock Exchange (ASX). She also started subscribing to The StockWatch Weekly (StockWatch), a stockbroking newsletter which offers weekly analysis of leading shares in various industries considered to be undervalued.

In late 2018, Lucinda embarked on a strategy of buying and selling a large portfolio of shares purchased by using funds from the CBA margin loan. Her investment strategy was based on her vast business experience and knowledge, gut feeling, a healthy appetite for risk, and other trusted sources in the industry, including the weekly newsletter from StockWatch. Lucinda used the data from StockWatch to identify companies considered to be undervalued. She also sometimes conducted separate and additional research on undervalued stocks on the Financial Review website.

Based on her regular researches of the Commsec website and the information about undervalued stocks available from the StockWatch newsletter, Lucinda would buy large tranches of shares in a number of different companies that had a falling stock price. She would then sell the shares once it appeared the price began to rebound. Overall, this strategy proved very successful during the 2019 income year, producing a net profit of $150,000 for the year.

In response to the Covid-19 crisis however, Lucinda did not buy and sell many shares during the 2020 income as she was required to devote more time to her failing retail businesses. Nevertheless, in June 2020 Lucinda did manage to buy a large parcel of shares in an undervalued emerging IT company, Reddoul. She held these shares for 13 months before selling them for a substantial profit of $200,000 in July 2021.

In her tax return for the year ending 30 June 2021, Lucinda treated the $200,000 profit as a capital gain. However, the Commissioner of Taxation disagreed and instead treated the profit as ordinary income that is assessable under s 6-5 of the Income Tax Assessment Act 1997.

Required: By reference to relevant legislation, caselaw and rulings (if any), advise Lucinda whether the Commissioner of Taxation is correct to assess the $200,000 profit as ordinary income. Your answer must include discussion of relevant principles concerning whether the $200,000 profit made in the 2021 income year constitutes ordinary income. You are not required to discuss any capital gains tax consequences arising from the above facts. (Using IRAC method to structure your solution).