| Disclaimer This edited version has been archived due to the length of time since original publication.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 private advice
Authorisation Number: 1051567304606
Date of advice: 20 August 2019
Ruling
Subject: Contracts for difference and binary options trading losses
Question
Does your activity amount to the carrying on of a business?
Answer
No.
You do not meet the relevant factors contained in Taxation Ruling TR 97/11. Further information about carrying on a business can be found by searching 'QC 31733' on ato.gov.au
Question
Are the losses from your CFD and binary options trading activities deductible?
Answer
Yes
The principles set out in Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for differences (TR 2005/15) have been applied, which provides the Commissioner's view on the income tax consequences of entering into financial CFD's.
Binary options trading activity
Participation in binary options trading has been identified as a commercial transaction and seen as speculation on a financial risk similar to what is discussed in TR 2005/15.
As such, the principles set out in TR 2005/15 listed above will also apply to your binary options trading activity.
Application to your circumstances
In your case, as your CFD trading and Binary options trading activities were not being carried on as a business, but rather as a profit making undertaking, the losses from both activities are deductible, and the non-commercial loss rules will have no application.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You traded in Contracts for difference (CFD's) and Binary options between late 20XX and early 20XX.
During this period you completed a moderate number of binary option trades and small number of CFD trades.
You spent a few hours per week conducting both trading activities.
You held employment during the period you completed the CFD and binary option trades.
You conducted both activities with a profit making purpose, rather than as part of conducting a business.
You did not have a business plan.
You did not set up a home office for the trading activities, and you traded on your lap top whilst you were home, or on a mobile device whilst you were away from home.
You conducted the trades yourself via two on line trading platforms, and both hold an Australian Financial Services Licence Number.
You obtained information about strategies for CFD and binary option trades from various websites, which enabled you to understand the working of leverage, stop loss, take profit functions, and time to expiry.
You also held a demo account, and you also understood the risk of positions closing out due to insufficient equity and the payout rules on closing positions.
You kept track of financial events and news, and you used index moving average related statistics to track momentum in the underlying securities traded using CFD's.
You researched strategies for binary options and developed a spreadsheet to track risks of one particular strategy, using loss probabilities for individual and cumulative trades, and factoring payout ratios in order to determine amounts and timing for the trades.
You completed market analysis by reviewing daily financial news and events via various media and news sources, along with trading platform data such as market announcements, insights, trends, price alerts and pattern recognition.
You made an overall loss for each trading activity.
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 995-1