ForEx/CFD trading tax treatment summary from my understanding - Please let me know if I am wrong!

 Author: Kindo(Newbie)Newbie

1 Sept 2021

Could I please get clarification as I do read all these threads and see all the jargon which can confuse some people like myself. From a non-business aspect and falling under trading with the purpose of profit taking:

If we are trading CFD's with a gain in the financial year, it will be assessed as income hence having to be declared as additional income. (e.g. $2000 profit to be declared). However if were made a loss, it can be used to deduct from our current income salary (e.g. $2000 to be deducted in 'Other deductions' section). Is this correct?

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 Author: BlakeATO(Community Support)Community Support

6 Sept 2021

Hi @Kindo

Assuming you're not running a business of CFD trading, then you're correct. You'll report your income as other income, and any losses as other deductions.

You can read about completing myTax 2021 Other income on our website.

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 Author: iqcron(Enthusiast)Enthusiast

6 Sept 2021

Hi @BlakeATO,

Can we treat profit/loss making activities (not running on a business) from CFD trading as we treat profit/loss making activities from residential (not commercial) rental investment for tax purposes?

This answer will solve my final confusion around the tax treatment to CFD trading.

Thanks in advance!

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 Author: KylieATO(Community Support)Community Support

8 Sept 2021

Hi @iqron

It would depend how you yourself treat profit/loss for rental investments :) can you elaborate?

From what you've written previously about reporting CFD's, it doesn't look like you're confused.

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 Author: iqcron(Enthusiast)Enthusiast

9 Sept 2021

Hi @KylieATO ,

Thanks for your reply!

I get confused when I see replies in other threads on CFDs here and like @BlakeATO replied to @Kindo specially in response to these words from Kindo "....However if were made a loss, it can be used to deduct from our current income salary (e.g. $2000 to be deducted in 'Other deductions' section). Is this correct?" saying Kindo is correct without elaborating or atleast denoting the fact that the loss from CFD trading can or cannot be negatively geared against other incomes.

When someone says "if I made a loss" this loss can be meant any net overall yearly loss, gross overall yearly loss or loss from one single CFD close position. So if you dont atleast mention CFD loss can or cannot be negatively geared from other incomes for tax purposes like we can from residential rental investment properties, then one can simply use their net yearly CFD loss from all close CFD positions in D15 avoiding the intermittent profits per close contract for difference position they made through out the financial year.

Hope this explains and may be my understanding about contract for difference and negative gearing still not enough and hence the confusion. Please let me know if there is any referrence which may help me clear this relationship between negative gearing and CFD. Cheers!

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 Author: Kindo(Newbie)Newbie

10 Sept 2021

Reading through your question I cant seem to understand where you're coming from @iqcron. Feel free to correct me, as this is just all my understanding from what I have researched and past knowledge.

I dont think "negatively gearing" is the right term in this use case in relation to CFDs and more suited for obviously investment property. Negative gearing will require a gross income generated by an investment (i.e. Property renting) to be less than the cost of owning/managing the investment (i.e Mortgage repayments, management fees, insurance, utility fees, etc). This investment is also funded by the investor borrowing from a lender. In comparison to CFDs, you can argue to the point that majority of CFDs are leveraged (hence to some degree lending), but are not linked in any other sort of way other than its relatability to be deducted from assessable income. If there was a net loss from CFD's, it would fall more under the term of deducting from assessable income rather than negatively gearing against income if you were to speak about claiming back on tax.

I think where your confusion may lie is with actually calculating the net profits/loss for CFDs. Individuals should not be calculating only the loss portions of each position when trading in CFDs. As with any trading including stocks or crypto, you will calculate the NET REALISED PROFIT (OR LOSS) within the financial year.

E.g.Assuming this is for an individual under the circumstances 1. Not in a business of CFD trading, and 2. Trading CFDs for the purpose of profit taking.Position 1 (1/12/20) +$50Position 2 (5/3/21) -$100Position 3 (23/6/21) -$50In this case, the combination of this is a NET REALISED LOSS of -$100 in the FY20-21.

This net loss is then used as a deduction against your assessable income (e.g. Assessable income of $10000 now becomes $9900). Vice versa if there was a NET PROFIT, it would be added to your assessable income (e.g. Assessable income of $10000 now becomes $10100). This specifically only applies to CFDs as they are considered in the eyes of the ATO as assessable income/deductions (refer to TR2005/15 if you want to actually read through their whole ruling about this). In no circumstances should individuals be claiming losses position by position without claiming profits (e.g. Claiming loss in Positions 2 and 3 only and ignoring Position 1) as I stated above, it is a calculated NET REALISED PROFIT/LOSS for the financial year. Trading statements/report will always usually report on this figure aswell.

Hope this makes sense.

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 Author: iqcron(Enthusiast)Enthusiast

10 Sept 2021

Hi @Kindo ,

Perfect mate, this is good now that you have provided an example. And this is what I understood exactly what you meant to ask in your first inquiry.

Using your example, in short, what I am saying is you have to declare $50 in Other Income and claim $150 in D15 Other deduction. Not just yearly net $100 in D15. I think I can't be any more clear on this and this is what I get after reading TR2005/15. This way your total assessable income will be $10050 and total deduction will be $150 (plus any other deductions if you may have in relation to your other incomes). After this you will get your net taxable income $9900 in this case same as your result but this way your intermittent gains are also declared in the calculation.

If you are netting it out yearly saying net realised loss $100 and simply put $100 loss in D15 Other Deduction in your tax return, this is what is incorrect from my understanding, and this is the likes of treating your CFD net yearly loss, as if; it's your net yearly loss from residential rental investment property. The way you treated this in your example is what you can do only with negatively geared assets like residential rental investment property not CFDs (if I am still not confused!?).

And if you read my main thread this is what I meant by way of stressing on the words yearly/intermittent Total and Net profits and losses.

Just FYI, each of your buy/sell close position throughout the financial year is your "contract for differences" for profit making activity (not the net yearly activities) if those rulings from TR2005/15 is interpreted correctly, unless you are CFD trading for recreational gambling purposes and if any other exceptions explained in TR2005/15 apply to you then you don't have to declare it in your tax return.

Hope someone from the ATO will validate which one of us is correct as it's clear enough by now what I have meant and what you meant here! Cheers! ?

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 Author: iqcron(Enthusiast)Enthusiast

10 Sept 2021

Btw, @Kindo in other words, in your example the way you treated that yearly net $100 loss from CFD against your assessable income without declaring that $50 CFD gain in your assessable income first is the perfect example of how you get tax-benefit by means of negative gearing or offsetting the net loss from a residential rental investment property against your taxable income in your tax return from my understanding. I am pretty sure a taxpayer is not allowed to get this tax-benefit from CFD trading as much as I can perceive from the interpretation of the related tax rullings (fyi, I have not come accross with a specific section of the tax law or an example given by the ATO as yet to address on this - CFD vs Negative Gearing, but I guess it is may be simply because it is quite clear in the TR2005/15 and this TR means what it says).

As I could see from my point of view all these general replies here on CFDs can be misleading taxpayer like you and I (in my view as per your example as it clearly differs from mine even after you read Blake's reply), that was why I started this thread and was looking for a validated and more specific response from the ATO staff here on this. And I will still say, I may be incorrect until my response is validated by the ATO staff here because there may be a section of the law or rulling that I may be not perceiving correctly or still not aware of in relation to this or tax law may have been changed overtime/recently or as an individual's circumstances may vary the ultimate tax determinations on this and so on. So in taxation, it's always safe to say "it depends" or elaborate as much as possible before giving a positive/negative reply on someone's enquiry as perception varies from person to person based on so many factors mainly being education and experience around the subject matter. This is why it's always good to consult with a Registered Tax Agent rather than relying on information on the Internet.

Cheers!

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 Author: AriATO(Community Support)Community Support

22 Sept 2021

Hi @iqron and @Kindo

I believe paragraph 18 of TR 2005/15 answers your question.

Whether gross receipts and gross outgoings are respectively assessable income and allowable deductions, or whether it is the net profit or the net loss, will depend on the terms of the contract in each case. However it's reported it should still yield the same outcome overall.

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 Author: iqcron(Enthusiast)Enthusiast

24 Sept 2021

Thank you @AriH,

Paragraph 18 is spot on. My apologies I didn't read it carefully enough.

However, I dont know why I was paying less tax while I was lodging my tax return through MyGov - ATO myTax service by netting my CFD profit/loss out and simply putting the yearly net CFD loss in D15. Not sure if myTax in myGov had a glitch in it but without double checking I thought it was factoring into the "Income Test" - mainly the income test item "Net financial Investment Loss". But now I have double checked it and realised that CFD profit/loss is not regarded as financial investments for income test purpose. I have also done an independent calculations using both methods in a seperate software and it actully yields the same result. You are right! And further to my discovery I have found out the calculation result from myTax was giving me is now different to the NOA issued to me by the ATO. So I am quite convonced that the myTax in myGov had a glitch in it or I might have selected different lavel under Other Income or Other Deductions items by mistake while putting the gross income and gross loss amounts. So not sure if I should amend my tax return or the ATO has already amended it since the NOA seems different to myTax's original result.

So it's confirmed the yearly net loss from CFD can be offset against other income (if not running on a business) like we can offset the net loss from a rental property (same as negative gearing - sorry not sure if negative gearing is the right term to use here but I have got it in my brain and can't let it go...since it is decreasing the taxable (not assesable) income directly by way of using the net loss in deduction).

Thanks again for the clarification and have a good one! :-)

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