Private ruling: Am I in the business of trading
Date of advice: 11 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Were you carrying on a business of share trading contracts for difference (CFD's) in Foreign Exchange (Forex)? | A1: Yes. | Q2: Will the losses from your business of CFD trading in Forex be deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes.

Relevant facts and circumstances: You are trading in foreign currency using margins. You trade regularly and routinely with more than 3000 trading activities for the relevant financial year. You conduct extensive research and analysis. Your intention was to make a profit from the trading activities. You recorded an overall loss for the subsequent financial year You satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. Your turnover was more than $20,000.

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: Summary: Contracts for differences (CFD) are a form of cash-settled derivative in that they allow investors to take risks on movements in the price of a subject matter (the 'underlying') without ownership of the underlying. Financial CFD's include those relating to share prices, share price indices, financial product prices, commodity prices, interest rates and currencies. 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 from the CFD transactions will be accounted for under section 6-5 of the 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. In your case, your forex margin product had the characteristics of a CFD. It allowed you to take risks on movements in the price of a subject matter (the 'underlying') without ownership of the underlying. Regarding the matter of whether you were carrying on a business of CFD trading in Forex in the year ended 30 June 2014, 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, in the year ended 30 June 2014, the factors that gave the overall impression that you were in business are: • You traded regularly, you made more than 3,000 trades; • You conduct extensive research and analysis; and • Your turnover was more than $20,000 for the year. As you meet the income requirement, and you pass the assessable income test, you will be able to claim your business loss from CFD Forex trading in the current year, being the year ended 30 June 2014.