| Disclaimer This edited version has been archived due to the length of time since original publication.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. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012577856727
Ruling
Subject: Am I in business as a CFD trader?
Question
Are you in business as a CFD trader?
Answer
Yes.
This ruling applies for the following periods
Income year ended 30 June 2008
Income year ended 30 June 2009
Income year ended 30 June 2010
Income year ended 30 June 2011
Income year ended 30 June 2012
Income year ended 30 June 2013
The scheme commences on
1 July 2007
Relevant facts and circumstances
You commenced the activity of trading CFD's in late 2007.
From this time onwards you made a substantial amount of CFD transactions:
Income year |
New CFD transactions |
2008 |
Over 500 |
2009 |
Over 500 |
2010 |
Over 500 |
2011 |
Over 750 |
2012 |
Over 700 (figure calculated from information available.Relevant transaction data not received) |
2013 |
Over 1,200 |
Your CFD transactions are carried out with the purpose of making a profit.
You have completed courses and conduct a substantial amount of research to assist you with your CFD trading.
In 2008 you ceased paid employment to pursue trading in CFD's on a full time basis. However you incurred substantial losses in the 2008 and 2009 income years. Consequently you returned to full time work, but continued to trade CFD's regularly.
You trade through X Markets. You trade using a margin account which requires 5% equity. The balance of your trading is financed through X Markets.
You sustained heavy losses through CFD trading, and have invested a significant amount of money into the activity in relation to your personal circumstances.
You use a variety of strategies when trading, but your most successful strategy is the stock price run up to ex dividend dates. You monitor all Australian company ex dividend dates. You also use chart analysis and subscribe to Red Back market reports.
You keep records of your CFD transactions.
You work full time at another occupation, but receive updates on the market throughout the day via your phone. You also have office space at home where you conduct your 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
Reasons for decision
CFDs are a form of cash-settled derivative in that they allow investors to take risks on movements in the price for a subject matter (the underlying) without ownership of the underlying.
Participants in CFDs take a risk that the price of the underlying will or will not exceed a price for that underlying at some time in the future.
CFDs include those relating to share prices, share price indices, financial product prices, commodity prices, interest rates and currencies.
Where CFD transactions are entered into as an incident of carrying on a business gains are assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), while losses are deductible under section 8-1 of the ITAA 1997.
Where CFD transactions are entered into as a profit-making undertaking or plan the gains are assessable as ordinary income under section 15-15 of the ITAA 1997, while losses are deductible under section 25-40 of the ITAA 1997.
Whether or not CFD transactions are a business activity or a profit making undertaking, the resulting gains and losses are not assessable on capital account in either case.
Carrying on a business of CFD trading
Whether activities undertaken constitute the carrying on of a business is essentially a question of fact. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators.
In the case of CFD trading repetition and regularity are considered to be important indicators on whether or not a business is being carried on, with the size and scale of the activity being supporting factors.
In your case you have carried out between 500 to 1200 CFD transactions in the income years from 2008 to 2013. This is considered to be a commercial level of transactions and would be a supporting indicator that a business of CFD trading was carried on.
You also traded consistently throughout the income years. The regularity of your transactions also support that a business of CFD trading was being carried on.
For CFD transactions as there is no ownership of the underlying asset it is the realised profit and loss which indicates the size and scale of the transactions. In your case the value of your closed positions varies significantly. However, a closed position of over $10,000 is not unusual and would be considered to be commercially significant. The size and scale of your activities also supports that a business of CFD trading is being carried on.
Overall the weighing up of the relevant factors indicates that you are carrying on a business of CFD trading.
Your CFD transactions would be considered to be business activities. Any gains or losses from your CFD trading would be considered to be assessable income and reported in your tax return as net income or loss from business.