Edited version of your written advice

Authorisation Number: 1012916383407

Date of advice: 24 November 2015

Ruling

Subject: Am I in business - Contracts for difference - Non-commercial losses

Question 1

Will the gains and losses from your contracts for difference (CFD) trading be accounted for on revenue account for income tax purposes?

Answer

Yes.

Question 2

Can you offset your CFD trading losses against your other taxable income such as wages and salaries?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20YY

Year ended 30 June 20ZZ

The scheme commenced on:

1 July 2012.

Relevant facts and circumstances

You commenced trading in CFD's during the 20XX income year.

You engaged the services of a broker agency and held a joint account with another person.

You traded regularly and systematically with the intention of making a profit.

You spend in excess of 20 hours per week studying the markets.

You subscribed to a daily share track report and perform research online.

For the year ended 30 June 20XX, you made in excess of 150 trades through your joint account, recording an overall loss.

For the year ended 30 June 20XX, you made total gains from CFD trading activities in excess of $100,000 through your joint account.

For the year ended 30 June 20YY, you made in excess of 50 trades through your joint account, recording an overall profit.

For the year ended 30 June 20YY, you made total gains from CFD trading activities of in excess of $50,000 through your joint account.

For the year ended 30 June 20ZZ, you made in excess of 150 trades through your joint account, recording an overall loss.

For the year ended 30 June 20ZZ, you made total gains from CFD trading activities in excess of $250,000 through your joint account.

For the years ended 30 June 20XX, 30 June 20YY and 30 June 20ZZ you met the income requirement because the total of the following amounts was less than $250,000:

• Taxable income (ignoring business losses);

• Total reportable fringe benefits;

• Reportable superannuation contributions;

• Total net investment losses - including financial investment losses and rental property losses.

The following documents are to be read with and form part of the scheme for the purpose of this private binding ruling:

• Broker statements for your joint account for the years ended 30 June 20XX, 30 June 20YY and 30 June 20ZZ.

• CFD trading summary prepared by your tax agent.

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 35-10

Income Tax Assessment Act 1997, Section 35-30

Income Tax Assessment Act 1997, Section 995-1

Reasons for decision

Question 1

Summary

The gains and losses from your CFD trading are accounted for on revenue account for income tax purposes.

Detailed reasoning

Where CFD trading is part of the carrying on of a business, the gains from the CFD transactions will be accounted for under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and the losses under section 8-1 of the ITAA 1997. Otherwise, the CFD trading will be regarded as part of the carrying out of a profit making undertaking and the gains from the CFD transactions will be accounted for under section 15-15 of the ITAA 1997 and the losses under section 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 provisions.

Regarding the matter of whether you were carrying on a business of CFD trading in the years ended 30 June 20XX, 30 June 20YY and 30 June 20ZZ, 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, we have determined that you were carrying on a business of CFD trading. The factors that gave the overall impression that you were in business were:

• You traded regularly through your joint account;

• In excess of 150 trades in the year ended 30 June 20XX

• In excess of 50 trades in the year ended 30 June 20YY

• In excess of 150 trades in the year ended 30 June 20ZZ

• Turnover was quite high and you made total gains from CFD trading activities in your joint account of:

• In excess of $100,000 in the year ended 30 June 20XX

• In excess of $50,000 in the year ended 30 June 20YY

• In excess of $250,000 in the year ended 30 June 20ZZ

As you are carrying on a business in CFD trading the overall net profit/loss for each year will be accounted for on revenue account.

Question 2

Summary

You can you offset your CFD trading losses against your other taxable income such as wages and salaries.

Detailed reasoning

As you are carrying on a business in CFD trading you may be able to offset the losses you make against your other income such as salary and wages. To be eligible, you must meet the income requirement and pass one of the four tests.

We have determined you met the income requirement in each relevant income year as the total of the following amounts was less than $250,000:

• Taxable income (ignoring business losses);

• Total reportable fringe benefits;

• Reportable superannuation contributions;

• Total net investment losses - including financial investment losses and rental property losses.

You also passed the assessable income test as the gains from your CFD trading were greater than $20,000. Therefore, you will be able to offset your CFD trading losses against your other taxable income such as wages and salaries in the years ended 30 June 20XX and 30 June 20ZZ. You will need to include the net gain in your return for the year ended 30 June 20YY.