Private ruling: Contracts for difference and binary options trading losses
Date of advice: 20 August 2019
Published: October 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does your activity amount to the carrying on of a business? | A1: 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 | Q2: Are the losses from your CFD and binary options trading activities deductible? | A2: 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.

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