Private ruling: Am I carrying on a business of trading contracts for difference?
Published: October 2012

Ruling: Q1:  | A1:  | Q2:  | A2:  | Q3:  | A3:  | Q4:  | A4:  | Q5:  | A5:  | Q6:  | A6:  | Q7:  | A7: This ruling applies for the following periods: Year ended 30 June 2012. The scheme commenced on: 1 July 2011.

Relevant facts and circumstances: You have one CFD account. This account is in your own name. You completed around X CFD transactions during the 2012 income year. The number of CFD transactions you made varied each month. The overall gain from your CFD trades during the 2012 income year was less than $10,000. The CFD Account Statements supplied form part of the facts.

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 paragraph 118-37(1) (c)

Reasons for decision: Summary: Tax treatment of contracts for difference (CFD's) - Questions 1, 2, 3, 4 and 5 The Commissioner's view about the tax consequences of CFD trading is found in Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for differences (TR 2005/15). Where CFD trading is part of the carrying on of a business, the gains and losses from the CFD transactions will be accounted for under sections 6-5 and 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Otherwise, gains and losses from CFD trading will be regarded as part of the carrying out of a profit making undertaking and accounted for under sections 15-15 and 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 being accounted for under the capital gains tax (CGT) provisions. The Commissioner is of the view in TR 2005/15 that CFD trading is an act of commerce and that speculating on such contracts will be productive of a gain or a loss. This gives rise to the profit making intention of the activity. An activity which is considered commercial is different to an activity which is regarded as gambling. It would be rare for a person entering into CFD contracts to be considered gambling or the carrying out of a recreational activity. The gambling view may be taken if a CFD contract was entered into only once or very occasionally and by someone who had no expertise in the price of the underlying asset, or does not engage any income producing activities bearing some association or connection with the activity. Given that you closed off Y trades your CFD trading is not considered gambling. Regarding the matter of carrying on a business, 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 provided indicators as to what would be carrying on a business of share trading including CFD trading. The regularity in the buying and selling of shares and sales turnover is the prominent indicator. Supportive indicators include operating in a business-like manner and the degree of sophistication involved. In your case you have one CFD account with Z and only completed approximately X trades. The number of trades varied each month. This level of activity does not have the commercial character of a business. Therefore your gains and losses from CFD trading will be regarded as part of the carrying out of a profit making undertaking. It follows you will have a gain on trades where a profit was made and a loss on trades that were not profitable for the year ended 30 June 2012. | Detailed Reasoning - Income tax return - Question 6 and 7: Paragraph 13 of TR 2005/15 rules that a gain from a CFD trade will be assessable income under section 15-15 of the ITAA 1997 where the transaction is entered into in carrying on or carrying out a profit making undertaking or scheme. Paragraph 14 of TR 2005/15 rules that a loss from a CFD trade will be an allowable deduction under section 25-40 of the ITAA 1997 where the transaction is entered into in carrying on or carrying out a profit making undertaking or scheme. Any credit interest earned from your CFD account will be assessable income; any debit interest incurred in you CFD account will be an allowable deduction. The sum of your gains from your CFD trading activities for the year ended 30 June 2012 should be returned at item 24 'other income' in the Tax return for individuals (supplementary section) 2012 . While the sum of your losses from your CFD trading activities for the year ended 30 June 2012 should be returned at item D15 'other deductions' in the Tax return for individuals (supplementary section) 2012 .

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Am I carrying on a business of trading contracts for difference?: Question 1: For the year ended 30 June 2012, were you in the business of trading contracts for difference (CFD's)? | Question 2: For the year ended 30 June 2012, were any profit that you made from your CFD activities a capital gain and any loss that you made a capital loss? | Question 3: For the year ended 30 June 2012, were your CFD contracts considered to be contracts of gaming and wagering and therefore not assessable income? | Question 4: For the year ended 30 June 2012, were your CFD activities the carrying out of a profit making undertaking or scheme where your gains would be assessable on revenue account under section 15-15 of the Income Tax Assessment ACT 1997 ? | Question 5: For the year ended 30 June 2012, were your CFD activities the carrying out of a profit making undertaking or scheme where your losses would be an allowable deduction under section 25-40 of the ITAA 1997? | Question 6: Should CFD activities that made a profit be returned in your income tax return for the year ended 30 June 2012 at item 24 'other income'? | Question 7: Should CFD activities that made a loss be returned in your income tax return for the year ended 30 June 2012 at item D15 'other deductions'?