Edited version of private advice

Authorisation Number: 1051571752523

Date of advice: 30 August 2019

Ruling

Subject: Carrying on a business of trading contracts for differences

Question 1

Were you carrying on a business of trading contracts for differences?

Answer

Yes.

Question 2

Are you able to deduct your trading loss from your other assessable income?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

During the relevant income year, you worked as a contractor and derived gross income of between $XXX and $XXX.

You commenced trading contracts for differences (CFDs).

Prior to commencing trading, you spent numerous hours learning company valuation, balance sheet analysis, market trends, stock movement analysis etc.

During the relevant income year, you spent 4 to 6 hours every weekday trading from your home during US market hours (11.30pm to 6.00am).

You performed a total of 900 to 1,000 trades during the year, made a gross total gain of over $100,000 and a gross total loss of over $200,000.

Outside trading hours, you spent a significant amount of time every week researching companies and planning future trades.

Your research activities included analysing charts to identify technical indicators including resistance points, trend lines, moving averages, momentum, and trade volume. You also checked recent news and events specific to a company's industry, and compared present stock trends and earnings forecasts.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 Division 35

Reasons for decision

Taxation Ruling TR 2005/15 provides the Commissioner's view on the income tax consequences of entering into financial contracts for differences (CFDs). Where transactions are entered into as an ordinary incident of carrying on a business the gains from financial CFDs are assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and the losses are deductible under section 8-1 of the ITAA 1997.

The question of whether a business is being carried on is a question of fact and degree and is determined on a year by year basis. If a taxpayer's activities do not amount to the carrying on of a business in one income year, that will not prevent them doing so in a later income year. Similarly, when the extent of an activity falls below what is required for that activity to be commercially viable, the activity may no longer constitute the carrying on of a business.

Taxation Ruling TR 97/11 (TR 97/11) provides a guide to the indicators that the courts have held to be relevant as to whether or not a person is carrying on a business.

Having regard to the indicators contained in TR 97/11, you are considered to have carried on a business of trading CFDs because:

• you traded in CFDs with the intention of making a profit, giving the activity a commercial purpose
• you took a systematic and organised approach to your trading, spending time researching companies and planning future trades
• you had repetition and regularity in your trading activities, engaging in a significant number of trades which occurring throughout the financial year
• the level of your CFD trading was commercially significant, with gains of over $100,000 and losses of over $200,000, and
• while you were engaged your normal employment, you still devoted 4 to 6 hours per week to CFD trading from your home.

Deducting business losses

A loss from a 'non-commercial' business activity carried out by an individual taxpayer is prevented from being offset against other assessable income in the year in which the loss is incurred unless one of the non-commercial loss tests is passed (Division 35 of the ITAA 1997).

Losses that cannot be offset against other income in the year in which they arise may be carried forward to be offset in a future year when there is a profit from the non-commercial activity.

A taxpayer can deduct a loss from a business activity if their 'adjusted taxable income' is less than $250,000 and they meet one of four tests. One of these tests is the assessable income test which is met if assessable income (including capital gains) from the business activity is at least $20,000.

In your case, you meet this test as your total gains (before applying the losses) were over $20,000.

Therefore, the rules in Division 35 of the ITAA 1997 do not apply to defer your loss from trading and you can deduct the loss from your other assessable income.