1051577376196 | Legal database

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This edited version has been archived due to the length of time since original publication.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

Authorisation Number: 1051577376196

Date of advice: 05 September 2019

Ruling

Subject: Am I in business / contracts for difference trading and loan interest expenses

Question 1

Does your activity amount to the carrying on of a business?

Answer

No.

You do not meet the relevant factors contained in Taxation Ruling TR 97/11. Further information about carrying on a business can be found by searching 'QC 31733' on ato.gov.au

Question 2

Are the gains from your CFD trading activity assessable income, and are the losses from your CFD trading activity deductible?

Answer

Yes

The principles set out in Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for differences (TR 2005/15) have been applied, which provides the Commissioner's view on the income tax consequences of entering into financial CFD's.

In your case, as your CFD trading activities were not being carried on as a business, but rather as a profit making undertaking, the gains from the activity are assessable income, and the losses from the activity are deductible. In addition, the non-commercial loss rules will have no application.

Question 3

Are the loan interest expenses you incurred on a loan you specifically obtained for the sole purpose of your CFD trading activity deductible?

Answer

Yes.

The principles set out in Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v Roberts; FC of T v Smith (TR 95/25) have been applied, which provides the Commissioner's view on the deductibility of interest.

In your case, as the loan interest expenses have a direct connection to your income earning activities as a CFD trader, and as you obtained the loan for the sole purpose of your CFD trading activity, the loan interest expenses are deductible.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are qualified in a specialised profession.

You have significant experience in trading in financial products including shares, exchange traded funds, listed options, and contracts for difference (CFD's), however you do not hold any formal qualifications.

In early 20XX you completed specialised training in your profession and you took on a job which required significantly less working hours, and as such your salary reduced by less than half.

At this point in time you spent time conducting some further research on CFD trading, which included some market monitoring, with the intention of making a profit to supplement your salary income. Up until this point your CFD trading was very sporadic with mixed results.

Shortly after this you borrowed funds from a Bank for the sole purpose of your CFD trading activities.

You have not used the funds drawn down from the loan for any other purposes other than your CFD trading activities.

You incurred loan interest expenses during the 20XX-XX and 20XX-XX financial years.

Your trading strategy was primarily to trade in times of volatility, usually around times of market sensitive announcements such as interest rate changes or macroeconomic events, which usually resulted in short-term trades lasting minutes or hours.

You almost exclusively traded in a particular overseas stock market due to lower costs (spreads), and higher frequency of market sensitive announcements.

You conducted market analysis using the internet and newspapers.

Given the time difference, most market activity occurred in the evenings, and you estimate that you spent on average around 10 hours per week conducting the CFD trading activity.

You did not trade every evening, as it was your plan to trade around market volatility.

During the evenings where you did trade, you usually spent approximately 4 to 5 hours doing so.

Multiple positions were opened and closed each market session.

Your summary of activity statements show that you closed out a significant number of CFD transactions, however as stated above the transactions were usually short-term lasting minutes or hours.

All of your CFD trading was done from your home, and you did not set up a home office to use for the purposes of your CFD trading.

Whilst you had a trading strategy, you did not draw up a business plan.

You achieved a net profit in the 20XX-XX financial year.

You incurred a net loss in the 20XX-XX financial year, which was largely due to the markets being more volatile in early 20XX.

Your other non-CFD trading income was less than $250,000 in the 20XX-XX financial year.

Relevant legislative provisions

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.

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