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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012512341727

Ruling

Subject: Am I in the business of trading contracts for differences?

Question

Were you carrying on a business of trading contracts for differences (CFDs) during the 2012-13 financial year?

Answer

Yes.

This ruling applies for the following period

1 July 2012 to 30 June 2013

The scheme commences on

1 July 2012

Relevant facts and circumstances

You are employed full-time and trade CFDs after work.

You invested considerable funds into your CFD trading activity.

You conducted daily market analysis which included charting, stock market reports, broker research papers and financial news on television to assist with your trading.

You spent approximately three to four hours every weekday evening trading the United States and European markets and five hours on weekends formulating trading strategies and studying stock chart patterns.

You operated to a business plan.

Your summary of activity statement shows you closed out a significant number of CFD transactions.

You have a home office set up in your house used solely for your CFD trading activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Taxation Ruling TR 2005/15 provides the Commissioner's view on the income tax consequences of entering into financial CFDs. Where transactions are entered into as an ordinary incident of carrying on a business the gains from financial CFDs are assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and the losses are deductible under section 8-1 of the ITAA 1997.

The question of whether a business is being carried on is a question of fact and degree and is determined on a year by year basis. If a taxpayer's activities do not amount to the carrying on of a business in one income year, that will not prevent them doing so in a later income year. Similarly, when the extent of an activity falls below what is required for that activity to be commercially viable, the activity may no longer constitute the carrying on of a business.

Taxation Ruling TR 97/11 (Income Tax: am I carrying on a business of primary production?) provides a guide to the indicators that the courts have held to be relevant as to whether or not a person is carrying on a business.

Having regard to the indicators contained in TR 97/11, you are considered to have carried on a business of trading CFDs in the 2012-13 financial year because:

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