Edited version of private advice

Authorisation Number: 1051814225612

Date of advice: 16 March 2021

Ruling

Subject: Contracts for difference (CFD) trading

Question 1

Are the gains or losses made from your Contracts for difference (CFD) trading treated as profits or losses made from carrying on a business of CFD trading, assessed under sections 6-5 and 8-1 of the Income Tax Assessment Act (ITAA) 1997?

Answer

No. The determination of whether or not an activity amounts to a business being carried on is a result of the weight and influence of the facts in that situation. After applying the facts of your situation to the relevant indicators as listed in Taxation Ruling TR 97/11, Income tax: am I carrying on a business of primary production? (TR 97/11) it is considered that you were not carrying on a business of trading in CFD's.

As you were not carrying on a business in CFD trading, the non-commercial loss legislation has no application in relation to your circumstances.

Question 2

Are the gains or losses made from your CFD trading treated as profits or losses made from a profit-making undertaking or plan, assessed under sections 15-15 and 25-40 of the ITAA 1997?

Answer

Yes. Following the principles set out in Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for differences (TR 2005/15), the gains you have made from your CFD activities are assessable under section 15-15 of the ITAA 1997, and the losses you have incurred from your CFD activities are deductible under section 25-40 of the ITAA 1997.

Question 3

Are you able to claim your CFD net losses against your other income?

Answer

Yes. Your net CFD losses of a relevant financial year can be deducted against your total assessable income of that year.

CFD losses are included at label D15-Other deductions, on your personal tax return.

This ruling applies for the following periods:

Financial year ended 30 June 20XX

Financial year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You traded in CFD from XX 20XX to XX 20XX.

You did not have employment or other sources of income from XX 20XX to XX 20XX.

You claimed your intention for trading was to provide income to support yourself and relieve some financial pressure.

Prior to the commencement of trading, you conducted study/research as to how the trading system works, including reading, accessing free courses and engaging in trial trades.

The primary subject matter (the 'underlying') of your trading was Foreign currency exchange rate. You also traded the 'underlying' of company shares.

You claimed that on average, you spent 30-40 hours per week trading.

The statement from your trading platform shows you had 10 transactions or more per day on most of the trading days.

Your trading strategy included:

•         Conducting research on market/economy daily prior to making trades;

•         Not trading if market volatility too high and not trading prior to global news/announcements which may affect market reaction;

•         Using 'margin calls' and 'stop losses'.

On a typical trading day, you would

•         research market news, traders' forums and monitor market performance;

•         monitor or close any open position and open new positions;

•         research new products/stocks.

You stated you made most of the trade decisions. The decisions were made after conducting research. At times, you used third-party software to help make some trade decisions. Such 'software decisions' represented 15%-20% of total trades.

You invested around $XX,000 trading and made total losses for around $XX,000.

You ceased trading when you started full-time employment, as you no longer had time for trading.

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 division 35

Income Tax Assessment Act 1997 section 118-20

Income Tax Assessment Act 1997 section 995-1

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