Disclaimer
This edited version has been archived due to the length of time since original publication.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.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051462442469

Date of advice: 05 December 2018

Ruling

Subject: Income from trading of Contracts for Difference

Question 1

Are the gains you made from trading contracts for differences (CFDs) included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Are the losses you made from trading CFDs deductible under section 8-1 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You began trading Contracts for Difference (CFDs) in the relevant financial year

You completed a training program in trading in CFDs.

You joined various trading groups

You employed a strategy of swing trading supported by using support and resistance, indicators and other methods.

You opened a trading account and deposited funds in order to trade.

You initially tracked trades via a spreadsheet as well as using a trading platform

You conducted approximately XXXX transactions in the relevant financial year.

You incurred a loss as at 30 June 2018.

You entered into trading CFDs with a view to make a profit. You are continuing training and education in order to increase your skills.

You spend approximately 30 hours per week on trading, research and education.

You work at other employment for an average of 38 hours per week. The hours you work allow you to complete trading in the mornings as the markets open and also at night when additional markets open.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 15-15

Income Tax Assessment Act 1997 section 25-40

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

CFD trading

Taxation Ruling TR 2005/15 is about the income tax consequences of entering into financial CFDs. Gains from a financial CFD will be assessable income under section 6-5 of the ITAA 1997 if the CFD transaction is entered into as an ordinary incident of carrying on a business, or the profit was obtained in a business operation or commercial transaction for the purpose of profit making. However, for those taxpayers not engaged in business operations and who have entered into a CFD as a result of carrying on or carrying out a profit-making undertaking or scheme the gains made will be assessable under section 15-15 (paragraphs 11and 13 of TR 2005/15).

Losses from a financial CFD will be deductible under section 8-1 of the ITAA 1997 if the CFD transaction is entered into as an ordinary incident of carrying on a business, or the profit was obtained in a business operation or commercial transaction for the purpose of profit making. Losses from CFD transactions are deductible under section 25-40 where the gain would have been assessable under section 15-15 (paragraphs 12 and 14 of TR 2005/15).

Carrying on a business

Business is defined in section 995-1 of the ITAA 1997 to be any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

Whether activities undertaken constitute the carrying on of a business is essentially a question of fact. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators.

Paragraph 17 of TR 2005/15 states that to determine if a business is being carried on, matters such as whether the transactions are entered into in a systematic, organised and businesslike way; the repetition or regularity of the transactions; the scale of the transactions; whether the transactions are related to or part of other activities of a businesslike character; the purpose of the taxpayer; the degree of skill employed in how you engage in the transactions.

Taxation Ruling TR 97/11 outlines some factors that indicate whether or not a business of primary production is being carried on. These factors can be applied to other types of businesses, such as CFD and share trading. No individual factor is determinative, but should be weighed up in conjunction with the other factors. These factors are outlined below:

Nature of activity and purpose of profit making

The intention to make a profit is not, on its own, sufficient to establish that a business is being carried on. Where a business of trading in CFDs and shares exists, there is usually a business plan of how the activities will be conducted.

A business plan might show, for example:

In your case, you aimed to make a profit from trading in CFDs. You have completed a trading program in trading and joined various trading groups. You have spent approximately 30 hours per week on trading, research and education. You continue training and education in order to increase your skill in CFD trading.

Repetition and regularity of the activities

Repetition is a significant characteristic of business activities. Repetition refers to the frequency of transactions or the number of similar transactions.

In your case, you completed XXXX transactions in the 2018 financial year, with deposits of in your trading account. You made an overall loss as at 30 June 2018.

Organisation in a business-like manner and the keeping of records

Generally a business would involve study of trends, analysis of relevant material and reports, plans to take account of contingencies and market fluctuations and the seeking of advice from experts. As per Case X86 90 ATC 621, this means having or operating on a particular plan with the main goal of maximising profits. If records of purchases and sales of CFDs (and shares) were not kept, it would be more difficult for a person to demonstrate that a business was being carried on.

You do not have professional CFD or share trading qualifications however you have completed a trading program in trading. You joined various trading groups. You initially tracked trades via a spreadsheet as well as using a trading platform.

Volume of trading and amount of capital injected

A higher volume of purchases and sales of CFDs and shares is more likely to indicate that a business is being carried on.

You invested a sum of money into your trading activities. Over the financial year, you completed XXXX CFD trades, which included many same day trades.

Conclusion

After weighing up the factors outlined above, it is considered that you were carrying on a business of CFD and share trading.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).