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CFD taxation on gains and losses

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Newbie

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Hi,

I am currently looking into trading CFD's but I am really struggling to find any clear information on how taxation is treated so I have a few questions and I hope other users gain some benefit also.

 

Firstly, what is the difference between assessable income under 15-15 and 6-5 of ITAA 1997? Is it taxed differently?

see below:

"13. A gain from a financial contract for differences will be assessable income under section 15-15 of the ITAA 1997 where a taxpayer enters into a financial contract for differences in carrying on or carrying out a profit-making undertaking or scheme, and the gain from it is not assessable under section 6-5 of the ITAA 1997."

 

Secondly, what is the difference (tax-wise) for being assessed as profit taking as an individual compared to as a business? - they both look very similar apart from a few extra deductions for acting as a business (i.e. equipment and potential professional services fees).

 

Thirdly, is interest paid on a long position tax deductible under both scenarios?

 

Lastly, if one was to commence trading on a few holdings (up to 5 - 10) and only place up to 10 trades per annum - would that be considered looking to profit take?

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ATO Certified Response

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Replies 15

Hi @blakemalcolm,

 

Thanks for your patience whilst we received specialist information regarding your query.

 

The ATO has a view on CFD’s in TR 2005/15 Income tax: tax consequences of financial contracts for differences (TR2005/15) which outlines that CFD’s are always on revenue account, not capital.
 
TR2005/15 does discuss that gains on CFD’s are assessable under section 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997), however a gain from CFD’s would also be assessable under section 6-5 of the ITAA 1997. In both cases any gain made is assessable on revenue account.

 

If you are trading CFD’s, but your activity does not have the required repetition and regularity to be considered to be a business, the activity will be a profit making undertaking. Your gains and losses are assessable on revenue account, and  interest incurred on a margin loan to fund your CFD trading would be a deductible expense.

 

Similarly, if you are in business of trading CFD’s your gains and losses are assessable on revenue account. You would report your CFD trading as a business activity, and you would be entitled to deductions for expenses incurred in the same way as any other business. You can find information on Deductions for small business to understand what deductions may be available in this scenario on our website. Generally, a deduction for interest expense for a loan to fund your CFD trading would be an allowable deduction.

 

However, you will also need to consider whether the non commercial loss rules would apply to you, and if they do this may mean that any loss you make may need to be carried forward.

 

When considering whether you are the business of CFD trading, the most significant factors looked at are usually the volume of trading, and business like manner. More information is available at Shareholding as investor or share trading as business? The level of trading required to be in business is usually high (in the hundreds of transactions), however the size and scale of your transactions would also be a significant
 
A trading volume of around 10 CFD’s trades an annum would not usually be considered to be a business like level of activity.  Instead it is likely that this would be considered to be a profit making undertaking.

 

Hope this helps, JodieH.

21 REPLIES 21
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Community Support

Replies 17

Hi @blakemalcolm,

 

Welcome to our Community!

 

We've referred your query on to a specialist area for more information and we'll get back to you as soon as possible.

 

Thanks, JodieH.

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Newbie

Replies 16

Hi Jodie,

 

I really appreciate the response and I look forward to your follow up.

 

Blake

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Most helpful response

ATO Certified Response

Community Support

Replies 15

Hi @blakemalcolm,

 

Thanks for your patience whilst we received specialist information regarding your query.

 

The ATO has a view on CFD’s in TR 2005/15 Income tax: tax consequences of financial contracts for differences (TR2005/15) which outlines that CFD’s are always on revenue account, not capital.
 
TR2005/15 does discuss that gains on CFD’s are assessable under section 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997), however a gain from CFD’s would also be assessable under section 6-5 of the ITAA 1997. In both cases any gain made is assessable on revenue account.

 

If you are trading CFD’s, but your activity does not have the required repetition and regularity to be considered to be a business, the activity will be a profit making undertaking. Your gains and losses are assessable on revenue account, and  interest incurred on a margin loan to fund your CFD trading would be a deductible expense.

 

Similarly, if you are in business of trading CFD’s your gains and losses are assessable on revenue account. You would report your CFD trading as a business activity, and you would be entitled to deductions for expenses incurred in the same way as any other business. You can find information on Deductions for small business to understand what deductions may be available in this scenario on our website. Generally, a deduction for interest expense for a loan to fund your CFD trading would be an allowable deduction.

 

However, you will also need to consider whether the non commercial loss rules would apply to you, and if they do this may mean that any loss you make may need to be carried forward.

 

When considering whether you are the business of CFD trading, the most significant factors looked at are usually the volume of trading, and business like manner. More information is available at Shareholding as investor or share trading as business? The level of trading required to be in business is usually high (in the hundreds of transactions), however the size and scale of your transactions would also be a significant
 
A trading volume of around 10 CFD’s trades an annum would not usually be considered to be a business like level of activity.  Instead it is likely that this would be considered to be a profit making undertaking.

 

Hope this helps, JodieH.

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Newbie

Replies 0

Hi Jodie,

 

Thats great! I really appreciate you taking the time to assist with my query - that has clarified a lot. I will now most likely need to seek professional advice regarding how I would be assessed and whether I can offset any potential losses against my income.

 

Once again, I appreciate the support.

 

Blake.

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Initiate

Replies 11

Hi JodieH,

I have similar situation where I have started doing CFD trading since last financial year (2017-18) as extra income. Initially, I earned and then loss. In net, I am in loss of around 12k. I have reduced the risk and tranding more safely than before to gain some profit before start doing more risky/profit trade as before. Sorry, just try to give an idea of pattern. I am considering myself in bucket of "profit making" or "speculating" and thinking to offset my losses with my other income but I can not find any section where I can put income loss. I am doing online tax. Where can I find section to claim income loss?

Regards,

HariOm

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Newbie

Replies 10

Hi HariOm,

Have you found the section to put in your loss?

I am doing that too, I think this should be in sole trader section, then in the last part loss section.

 

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Initiate

Replies 9

Hi CHon, not yet. I will try finding as what you have suggested.

Will let you know how I go.

Thanks,

HariOm

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Newbie

Replies 8

Hi HariOm,

According to JodieM's explaination, you have to fulfill the business requirement in order for you to claim the loss.

Do you have an ABN to trade CFDs? Otherwise this trading will consider as hobby, which you unable to claim it.

Unlike share market (S108-5) where one is investing in a business, trading CFDs is more like speculating or gambling in nature, which might not deductible under S8-1 or S25-40.

Two weeks to go before tax return due, hope can complete it within this week. 

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Initiate

Replies 7

Hi @JodieM, @CHon,
I am confused now. According to "best answer" in thread, if your trading is not business like then it's profit making. So I consider my self in profit making.
But according to JodieH 's answer to CHon question, it's either business or gambling. So when does profit making category applies?
If I fall in profit making category, do i still have to have ABN? Or can i just claim as normal taxpayer (TFN)?
Thanks in advance.
HariOm