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Edited version of private advice
Authorisation Number: 1051608409631
Date of advice: 22 November 2019
Ruling
Subject: Income Tax - contracts for difference trading - loss
Question 1
Is your activity of contracts for difference trading the carrying on of a business?
Answer
No
Question 2
Can you claim a deduction for CFD trading losses under section 25-40 of ITAA 1997?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2019
The scheme commences on:
12 March 2019
Relevant facts and circumstances
You work full time in a private organisation.
After reading books and online resources on forex CFD trading, you decided to open a live account with the intention to earn additional income.
You started trading in 201X.
You had a total of X trades over the next X months.
During this period you had X trades that resulted in profits of $X and X trades that resulted in losses of $X. Therefore, you had a net loss of $X.
You spent about X hours per week on the activity while you were trading.
You then decided to stop trading for a while and do more research on how to generate profits consistently.
You commenced trading again in 201X.
You had a total of X trades over the next week.
During this period you had X trades that resulted in profits of $X and X trades that resulted in losses of $X. Therefore, you had a small net loss of $X.
You then decided to stop trading again due to the further losses.
At the moment you do not have a definite plan to start trading again. You want to start trading and recover your losses but you don't want to lose more money on the trading activity.
If you resume trading you intend about X hours per week on the trading activity and you intend to make around X trades per week.
If you resume trading, you intend to start with $X and invest a total of $X within the 2020 financial year.
At first, you used your savings to fund the trading activity but now you will use your employment income for future trading activity.
You did not seek any professional advice when setting up or conducting your trading activity. You completed online research and read books related to forex trading.
You do not have a designated office space or room where you undertake the trading activity.
You do not subscribe to any industry subscriptions.
You do not have a business plan.
Your ongoing intention is to earn some additional income, in addition to your full time employment income.
When making decisions to buy or sell CFDs you look for previous support and resistance levels in order to decide whether to buy or sell.
When making decisions on the amount you invest each time you try to invest around same amount of money for each transaction (depending on market conditions).
You follow business news and forex websites to get market information, which helps you to make trading decisions. You have not been using any analytical models.
You avoid trading at the time of significant data release or a press conference such as central bank interest rate decision or inflation, employment data releases. During these events the market fluctuations becomes very high and you believe avoiding trading at those time is a better strategy.
You use stop loss limits, usually around XXX points below your entry point.
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
Taxation Ruling TR 2005/15
Taxation Ruling TR 97/11
Reasons for decision
If you are trading CFD's, but your activity does not meet the indicators discussed in TR 97/11 to be considered to be a business, the activity will be a profit making undertaking.
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. Any losses made will be deductible under section 25-40 of the ITAA 1997.
In your case, we do consider 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.
Having considered your circumstances, the relevant legislation and taxation rulings surrounding contracts for difference trading, your net loss is able to be deducted against your total assessable income for the 2019 income year as per section 25-40 of the ITAA 1997.
Where carrying out a profit-making undertaking or scheme, CFD trading profit is included at Question 24 - Other Income, and CFD trading losses are included at D15 - Other deductions.
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