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Edited version of private ruling
Authorisation Number: 1011598915784
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
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Ruling
Are you entitled to a deduction for the losses you incurred from your contracts for difference (CFD) trading activities?
Yes.
Relevant facts
You are employed in a specified industry.
You opened a trading account with a company trading in CFD's where you deposited monies.
You commenced trading in CFD's.
You deposited further monies to cover the margin requirements of the account to prevent liquidation of your open positions.
Having suffered significant losses during the above period, you withdrew an amount from your account.
Your last trading activity was done prior to the end of the income year.
You have a credit balance in your trading account.
You calculate that you have made a loss from your trading activities.
You do not consider that you are in business as you have had no prior experience in trading CFDs and you have no system in place.
Reasons for decision
Contracts for difference
Taxation Ruling TR 2005/15 contains the Commissioner's view regarding contracts for difference.
Contracts for difference (CFDs) are a form of cash-settled derivative. They allow investors to take risks on movements in the price of a subject matter (the underlying) without owning it. Some subjects of CFDs are share prices, share indices, financial product prices, commodity prices, interest rates and currencies.
Gains or losses from CFDs can only be determined when the contracts are closed out.
Gains made from entering into a CFD
Where the transaction is entered into as an ordinary incident of carrying on a business, or where the profit was obtained in a business operation or commercial transaction for the purpose of profit making, a gain from a CFD will be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
However, where the taxpayer is not carrying on a business and enters into a financial CFD in carrying out a profit-making undertaking or scheme, the CFD gain will be assessable under section 15-15 of the ITAA 1997.
Based on the information you provided, we do not consider that you are carrying on a business of trading in contracts for difference considering your experience and the size and complexity of your trading.
We do consider however that you were engaged in a commercial transaction for the purpose of profit making. The very nature of engaging in buying and selling these types of financial products is for a profit making purpose. Therefore, any gains you made on CFD activities would be assessable income under section 15-15 of the ITAA 1997.
You advised that you made a loss from your CFD activities. A loss from CFDs where the gain would have been assessable under section 15-15 of the ITAA 1997 is an allowable deduction pursuant to section 25-40 of the ITAA 1997.
The loss amount is therefore deductible to you under section 25-40 of the ITAA 1997. You will need to include this amount at question D16 - Other deductions in your tax return.
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