Edited version of private advice

Authorisation Number: 1052398755570

Date of advice: 28 May 2025

Ruling

Subject:Am I in business?

Question 1

Are the gains or losses generated from trading contracts for difference (CFD) in the years ended 30 June 20YY and 20YY considered as profits or losses made from carrying on a business?

Answer

Yes.

Question 2

If the answer to Question 1 is yes, are the losses generated from CFD activities in the year ended 30 June 20YY and 20YY subject to Non-commercial loss provisions of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 3

Are the gains or losses generated from CFD activities in the year ended 30 June 20YY considered as profits or losses made from carrying on a business?

Answer

No.

Question 4

If the answer to question 4 is No, are the gains or losses generated from trading CFD in the year ended 30 June 20YY considered as profits or losses made from an undertaking or scheme?

Answer

Yes.

Question 5

Are the gains or losses generated from your share trading activities in the years ended 30 June 20YY, 20YY and 20YY considered profits or losses made from carrying on a business?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You commenced trading in contracts for difference (CFD) in the 20XX financial year.

For the first three financial years, the CFD activities were declares under section 6-5 of the ITAA 1997 and section 8-1 of the ITAA 1997 as being generated from a profit making scheme or undertaking, and in line with ATO Ruling 2005/15.

From the 20XX financial year onwards, and due to your increased levels of activity and profit making intentions, all gains and losses from your CFD activities were declared on revenue account under section 15-15 of the ITAA 1997.

In the 20XX financial year, you extended your range of investment activities to include short and medium trading in shares, both in Australian and international markets.

You have also been employed as a XXXX agent during this entire period, operating on a 'commission only' basis since 20XX.

This position has allowed you the ability to work from home and provides flexibility in office attendance and your employer provides staffing assistance for processing/administrative work.

Consequently, you have had the flexibility to arrange your XXXX obligations around your CFD activities and key trading events and times. For example, as trading markets are not open on Saturdays, this day is spent working a full day in XXXX.

You average approximately XX hours work per week in your employment position.

You have invested your own capital and income to support the operations of the CFD trading activities.

The CFD trading activities are conducted entirely online, utilising trading platform for the last XX years.

Two additional trading platforms have been used for the last XX years for short and medium term share purchases.

All trades are placed personally by you and are based on your own decisions having regard to your trading plans and extensive research from several specialist sources.

Before commencement of trading in 20XX you were actively involved with a qualified adviser in selecting / selling shares for approximately XX years through the 19XX's. This account consisted of Australian & overseas shares & investment funds.

You treated this period as a an active "learning experience" and always discussed & assessed company reports, market commentary etc: while the adviser provided information & advice, you made the actual purchase & selling decisions.

You attended numerous formal training seminars, on-line seminars, trading group platforms, read periodicals & financial newspapers / reports, paid for membership of many publications, trading groups & advisers.

You subscribe to various costly specialist platforms and reports.

You also access online resources and regularly listen to specialist podcasts and business media outlets.

You have developed specific written trading strategies, plans and rules for different instruments such as FX, shares, indices and you review these at least quarterly. This also included specific entry and exit for each type of instrument. These strategies, rules and specific trades always include the need for sufficient momentum in the general market and specific instrument as well as sufficient 'risk/reward premium' before the trade is placed.

You have prepared and maintained an over-arching written business plan (reviewed annually) that specifies your trading principles, methodologies and investment limits in total for each type of instrument and for individual trades.

The majority of trades are based on 'scalping' strategies meaning they are open for only a short period of time (can be 1 to 5 minutes), others may be a longer timeframe and based on any 'momentum' in the specific instrument.

You keep Excel records of your share trading and note the reasons, level of exposure, entry and exit signals in you winning and losing trades so you can continually assess you progress and changing trends in various market conditions and patterns.

Your trading platform provides a complete record of all trades for taxation purposes. You cross reference these records with your Excel records for analysis purposes.

All CFD trading activities by you are focused around periods when selected markets normally exhibit the most momentum.

You consider the position size for different types of trades and instruments.

With "scalping" trades you also continuously monitor the individual charts and make quick entry and exit decisions.

With longer term trades (for example, overnight or if you need to be away from your laptop) you apply a "stop loss" to the trade that automatically triggers a "sell" instruction to the trading platform.

You apply stop loss instructions on either a "% loss" basis or at a pre-determined level depending on chart patterns or momentum (specifically technical chart analysis), depending on the instrument I'm trading and market conditions.

In total, X hours per day or X hours per week is allocated to online trading, researching, implementation and review of strategies and administration.

For medium to longer term trading strategies the research time is significantly more than the short time taken to place the actual trade and an automatic sell/stop loss level on your platform. You quickly monitor open trades on an ongoing basis.

For short term scalping strategies (technical analysis of charts) the research time is very short followed by continual on-screen monitoring of the trades until personally closing. This trading was usually on currencies and conducted daily from about 5pm when the XX markets opened, followed by the opening of the XX markets in the evening.

You estimate the balance/split between operating medium/ longer term trades VS scalping trades was approximately XX% to XX%.

Combining all these factors and estimates your week would normally consist of XX hours trading on your laptop and X hours researching.

In the year ended 30 June 20YY you conducted XX CFD trades and XX share trades.

In the year ended 30 June 20YY you conducted XX CFD trades and XX share trades.

In the year ended 30 June 20YY you conducted XX CFD trades and XX share trades.

You have continued to trade in CFD's however more focus is now being applied by you to short to medium share trading in Australian and international markets.

You have not claimed any trading losses for the 20XX to 20YY financial years.

You satisfied the income requirement, with your taxable income, reportable fringe benefits, reportable super contributions and net investments losses, being less than $250,000 for the years ended 30 June 20YY, 20YY and 20YY.

Relevant legislative provisions

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 Subsection 995-1(1)

Question 1

Are the gains or losses generated from trading CFD in the years ended 30 June 20YY and 20YY considered as profits or losses made from carrying on a business?

Reasons for decision

Subsection 995-1(1) of the ITAA 1997 defines 'business' as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? (TR 97/11) sets out the Commissioners view of what factors to consider to determine if a taxpayer is in business.

Paragraph 13 of TR 97/11 states that the courts have held that the following indicators are relevant to determining the question whether a business is being carried on:

•                     whether the activity has a significant commercial purpose or character

•                     whether the taxpayer has more than just an intention to engage in business

•                     whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

•                     whether there is regularity and repetition of the activity

•                     whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business

•                     whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit

•                     the size, scale and permanency of the activity, and

•                     whether the activity is better described as a hobby, a form of recreation or sporting activity.

Whether the activity has a significant commercial purpose or character

Taxation Ruling 2005/15 Income tax: tax consequences of financial contracts for differences (TR 2005/15) indicates that the trading of CFD's is essentially a commercial activity. The purpose of your trading was to make a profit without the use of a broker or staff.

You have prepared and maintained an over-arching written business plan (reviewed annually) that specifies your trading principles, methodologies and investment limits, in total for each type of instrument and for individual trades.

Whether the taxpayer has more than just an intention to engage in business

The intention of the taxpayer in engaging in the activity is a relevant indicator in determining whether a business is being carried on.

The Full Federal Court in Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 stated that:

'The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant.'

You hold other commission based employment and you arrange your XXXX obligations around your CFD activities and key trading events and times.

Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

This indicator is directed at determining whether the taxpayer entered into the activity with an intention to make a significant commercial or financial gain from it. In Hope v The Council of the City of Bathurst (1980) 144 CLR 1; 80 ATC 4386; (1980) 12 ATR 231, Mason J states that business activities are usually activities that are 'engaged in for the purpose of profit on a continuous and repetitive basis'.

The intentions of the taxpayer are ascertained from looking objectively at their actions, including any arrangement entered into. All of the income expected to be received from, and all of the costs associated with, the activity are taken into account to determine what profit, if any, is expected.

It is important to show how the activity can make a profit. However, stronger evidence of an intention to make a profit occurs when the taxpayer has conducted research into his/her proposed activity, consulted experts or received advice on the running of the activity and the profitability of it before setting up the business. This was the situation in FC of T v. JR Walker 85 ATC 4179; (1985) 16 ATR 331.

You subscribe to various costly specialist platforms and reports. You have developed specific written trading strategies, plans and rules for different instruments.

Whether there is regularity and repetition of the activity including the size, scale and permanency of the activity

As there is no ownership of the underlying asset when trading CFDs, the size of the taxpayer's profit and loss can help to determine the size and scale of the trading activity.

You spend XX hours per day or XX hours per week is allocated to online trading, researching, implementation and review of strategies and administration.

You traded XX CFDs in 20YY and XX CFDs in 20YY.

Therefore, the activity clearly had repetition, regularity and significant size and scale.

Conclusion

After weighing up the objective facts and applying the indicators are set out in TR 97/11 to your circumstances, the Commissioner considers you were carrying on a business of trading CFDs for the years ended 30 June 20YY and 20YY.

Question 2

If the answer to Question 1 is yes, are the losses generated from CFD activities in the year ended 30 June 20YY and 20YY subject to Non-commercial loss provisions of the Income Tax Assessment Act 1997 (ITAA 1997)?

Reasons for decision

From 1 July 2000, legislation came into effect regarding losses from 'business' activities. Division 35 of the ITAA 1997 contains the measures, known as the non-commercial losses (NCL) legislation.

This Division prevents losses of individuals from NCL being offset against other assessable income in the year the loss is incurred when the individual is not able to pass a test, an exception applies or the individual has been granted the Commissioner's discretion.

If the individual does not pass the test, the tax loss from the business activity is deferred to a later year when the individual is able to pass a test, an exception applies or you have been granted the Commissioner's discretion.

For the 2009-10 income years and future income years, you must first meet the income requirements before you can apply the NCL tests. You meet the income requirement if your income for NCL purposes is less than $250,000.

Income for NCL purposes is the sum of the following:

1.            Your taxable income (ignoring any business loss);

2.            Your total reportable fringe benefits;

3.            Your reportable super contributions; and

4.            Your total net investment losses (such as rental properties and financial investments).

As outlined above, when the income requirement has been met, taxpayers must pass one of the four following tests:

•                     You have assessable income from the business of at least $20,000;

•                     You have made a profit from the business in least three out of the last five years;

•                     You use real property worth at least $500,000 (excluding private dwellings) on a continuing basis in the business; or

•                     You actively use assets worth at least $100,000 (excluding motor vehicles) in the business.

Exceptions to passing the four tests apply for taxpayers carrying on a professional arts business or a business of primary production. Taxpayers in these categories may offset a business loss against their other income if their other income for that year is $40,000 or less.

Application to your circumstances

In this case you satisfy the income requirement in both the 20YY and 20YY financial years. Your business activity had assessable income of more than $20,000 in both years. Therefore, the NCL provisions will not apply to defer the business losses in these years.

Question 3

Are the gains or losses generated from CFD activities in the year ended 30 June 20YY considered as profits or losses made from carrying on a business?

Reasons for decision

When your activity changes in a major way you must reassess whether you are in business.

In the 20YY financial year there was a significant reduction in your CFD trading activities. You completed XX trades as compared to more than XX in the 20YY financial year.

The Commissioner considers that the repetition and regularity of your trading activities was insufficient to constitute a business activity in this year. Further, the size and scale, in particular the investment of capital, was of a far reduced scale in the 20YY financial year.

Therefore, the Commissioner does not consider you were carrying on a business in the 20YY financial year.

Question 4

If the answer to question 4 is No, are the gains or losses generated from Contracts for Difference (CFD) in the year ended 30 June 20YY considered as profits or losses made from an undertaking or scheme?

Reasons for decision

TR 2005/15 outlines the tax consequences of entering into a financial contract for differences (CFD).

Paragraphs 11 - 15 of TR 2005/15 provide the following guidance on the tax implications of gains and losses from CFDs:

11. A gain from a financial contract for differences will be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) where the transaction is entered into as an ordinary incident of carrying on a business, or where the profit was obtained in a business operation or commercial transaction for the purpose of profit making.

12. A loss from a financial contract for differences will be an allowable deduction under section 8-1 of the ITAA 1997 where the transaction is entered into as an ordinary incident of carrying on a business or in a business operation or commercial transaction for the purpose of profit making.

13. A gain from a financial contract for differences will be assessable income under section 15-15 of the ITAA 1997 where a taxpayer enters into a financial contract for differences in carrying on or carrying out a profit-making undertaking or scheme, and the gain from it is not assessable under section 6-5 of the ITAA 1997.

14. A loss from a financial contract for differences where the gain would have been assessable under section 15-15 of the ITAA 1997 is an allowable deduction pursuant to section 25-40 of the ITAA 1997.

Application to your circumstances

Your CFD activities were undertaken with a view to making a profit and therefore your gains from trading CFDs are assessable under section 15-15 of the ITAA 1997 and your losses are deductible under sections 25-40 of the ITAA 1997 in the year in the year ended 30 June 20YY.

Question 5

Are the gains or losses generated from your share trading activities in the years ended 30 June 20YY, 20YY and 20YY considered profits or losses made from carrying on a business?

Reasons for decision

As previously discussed, TR 97/11 sets out various indicators to determine whether an activities amounts to a business.

In this case, your share trading activities were infrequent and the volume of trades you conducted was low. The holding patterns appear, for the most part, to be for medium to long term and for the receipt of dividend income.

The Commissioner considers that your activity lacked repetition, volume and regularity. In the 20YY financial year you completed only XX share trades. Further the amount of capital invested in this activity was relatively small.

Therefore, your shares are subject to capital gains tax when you sell them.

For more information on the tax treatment when you hold shares as an investor search for quick code 66047 at ato.gov.au.

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