Edited version of private ruling

Authorisation Number: 1011781657919

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Ruling

Subject: Contracts for Difference - Business loss and non commercial business loss rules

Question 1: Can you deduct the business loss from your Contracts for Difference (CFD) trading?

Answer 1: Yes.

Question 2: Do the gains made from your CFD trading meet the definition of assessable income under the assessable income test for the non commercial business loss rules?

Answer 2: Yes.

This ruling applies for the following period:

Year ended 30 June 2010.

The scheme commences on:

1 January 2007.

Relevant facts and circumstances

From 1 July 2009 until 30 June 2010, you conducted a strong regularity of CFD trades for profits of a certain amount and trading losses of a certain amount.

You meet the non-commercial losses income requirement because the total of the following amounts is less than $250,000;

· taxable income (ignoring any business losses),

· total reportable fringe benefits amounts,

· reportable super contributions, and

· total net investment loss - including financial investment losses and rental property losses.

You have included copies of the following documents which are to be read with and form part of the scheme for the purpose of this private binding ruling:

Brokerage facility statement for the year ended 30 June 2010.

Share trading questionnaire of a certain date.

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 paragraph 118-37(1)(c),
Income Tax Assessment Act 1997 Section 995-1,
Income Tax Assessment Act 1997 Section 35-10 and
Income Tax Assessment Act 1997 Section 35-30.

Question 1

Summary

You can deduct the business loss from your Contracts for Difference (CFD) trading.

Detailed reasoning

The Commissioner's view about the tax consequences of CFD trading is found in Taxation Ruling TR 2005/15. Where CFD trading is part of the carrying on of a business, the gains and losses from the CFD transactions will be accounted for under sections 6-5 and 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Otherwise, gains and losses from CFD trading will be regarded as part of the carrying out of a profit making undertaking and accounted for under sections 15-15 and 25-40 of the ITAA 1997.

Either way, the gains and losses from CFD trading are accounted for on revenue account and treated as ordinary income. The anti-overlap provisions in section 118-20 of the ITAA 1997 prevent gains and losses from CFD trading to be accounted for under the capital gains tax (CGT) provisions.

Regarding the matter of carrying on a business, court cases such as AAT Case 6297 (1990) 21 ATR 3747 and Federal Commissioner of Taxation v. Radnor Pty Ltd (1991) 102 ALR 187; (1991) 91 ATC 4689; (1991) 22 ATR 344 have held regularity in the buying and selling of shares and sales turnover to be the salient indicators of whether a taxpayer is carrying on a business of share trading. Operating in a business-like manner and the degree of sophistication involved is a supportive indicator.

In your case, you were carrying on a business of CFD trading because your activity exhibited a strong regularity in trading CFD's and a high sales turnover. It follows you can deduct your CFD trading loss under section 8-1 of the ITAA 1997.

Question 2

Paragraph 11 of Taxation Ruling TR 2005/15 rules that a gain from a CFD trade will be assessable income under section 6-5 of the ITAA 1997 where the transaction is entered into as an ordinary incident of carrying on a business.

In your case, the gains of a certain amount (trading profits) from your CFD trading for the year ended 30 June 2010, fit the definition of assessable income under the assessable income test for the non commercial business loss rules.