Edited version of your private ruling

Authorisation Number: 1012617620205

Ruling

Subject: Forex trading and the deductibility of training course

Question 1

Are the fees incurred for completing the training program tax deductible?

Answer

No.

Question 2

Are you considered to be carrying on a business as a trader and therefore able to treat the profit and losses as ordinary income and deductions?

Answer

No.

Question 3

Are the profits and losses from the activity treated on revenue account?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

June 2013

Relevant facts

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

• the private ruling application

• the record of conversation in which further information was provided.

You attended a two day trading course to learn how to trade in foreign currency.

You set up an account. You began trading with some very small trades.

It is your intention to continue to trade in this type of activity.

You work fulltime and any trading will be built around your job. You incurred course fees and additional expenses such as travel to attend the course, internet costs and training day fees.

You have not engaged in this type of trading activity previously.

You have provided copies of the invoices and other documentation.

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 Section 35-10

Income Tax Assessment Act 1997 Section 118-20

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Training Course

Taxation Ruling TR 98/9 Income tax: deductibility of self education expenses incurred by an employee or a person in business addresses the deductibility of self education expenses incurred by an employee or a person in business, paragraph 15 states that "the fact the study will enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment) is not a sufficient basis in itself for self education-education expenses to be deductible. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income."

As you undertook the training program and did not commence trading until after the course. The expense is considered to be incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

The expenses for this initial training course and associated costs for travel and accommodation are not allowable deductions.

Trading

Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for difference (TR 2005/15) outlines the taxation treatment of CFD's. A CFD is a form of cash settled derivative that allows investors to take risks on movements in the price of a subject matter (the 'underlying') without ownership of the underlying. Your contracts are a form of cash settled derivative that allow you to take risks on movement in price without ownership of the underlying asset.

TR 2005/15 states, where this type of trading is part of the carrying on of a business, the gains from the transactions will be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 ( ITAA 1997) and the losses will be deductible under section 8-1 of the ITAA 1997.

TR 2005/15 also states that, if the trading activities constitute the carrying out of a profit making undertaking or plan, but do not constitute a business, the net gain or net loss from trading will be assessable under section 15-15 of the ITAA 1997 or deductible under section 25-40 of the ITAA 1997.

Section 15-15 of the ITAA 1997 does not apply to a profit that is assessable as ordinary income under section 6-5 of the ITAA 1997. Section 25-40 of the ITAA 1997 does not apply to a loss arising from a profit making undertaking or plan unless any profit from that plan would have been included in your assessable income under section 15-15 of the ITAA 1997.

Whether or not particular activities constitute a business is a question of fact and degree. A process is undertaken where all the facts of a situation are applied to the relevant indicators, taking into account the weight and influence of the facts within the context of that particular situation.

The Commissioner's view about carrying on a business is found in Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production (TR 97/11). The ruling lists the following indicators as being relevant when determining whether or not 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 repetition and regularity of the activity

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

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

• the size, scale and permanency of the activity

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

TR 97/11 also states experimental or pilot activities do not amount to a business.

It is considered that the very minor trading that you completed was experimental activity and you would not be carrying on a business. Therefore section 25-40 of the ITAA 1997 would apply to the loss in that.

The status of whether you are carrying on a business should be considered on an annual basis if the factual situation changes. If you were considered to be carrying on a business the non-commercial losses (NCL) provisions would need to be taken into account for the trading business activity, if the business were in a loss situation. For the purposes of the NCL tests the sum of the profits on trades form the assessable income and the sum of the losses are considered deductible amounts.