# Tax on CFD market maker?



## PhoenixXx (28 June 2007)

Hi All, i'm just curious about tax upon CFD market maker trading.
Currently i'm using CMCmarkets.
As implied CFD means contract for difference, so we don't own the real shares. Playing CFD is basically similar as betting your money in casino right?
You take what you gain and can't claim anything you loss, ie no CGT or CL?
I read once that if you only play CFD once/twice a year (ie only for fun or gamble) then you don't need to report it.
But if you play on regular basis then you ought to report it.
Any comment?


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## Broadside (28 June 2007)

*Re: Tax on CFD market maker*

I heard the theory that because it is like gambling, you don't pay tax on winnings...I think the ATO refuted it, sorry I don't have a link....best to ask your accountant.  Last FY I paid CGT on the difference between my closing balance less my opening balance, after allowing for deposits and withdrawals....otherwise there are so many transactions and daily adjustments it's just impossible to keep track of.

I'd ask your accountant - I am confident it is taxable.


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## PhoenixXx (29 June 2007)

*Re: Tax on CFD market maker*

thx 4 the info, i'll try to gather more information.
as i find it rather vague in tax implication


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## PhoenixXx (4 July 2007)

*Re: Tax on CFD market maker*

Can anyone fill in here as i tried browsing pages and pages and still couldn't find the answer. Is there any on ATO website?


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## 123enen (4 July 2007)

*Re: Tax on CFD market maker*

http://law.ato.gov.au/atolaw/view.h...00001&recStart=1&recnum=8&tot=10&pn=ALL:::ALL


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## PhoenixXx (5 July 2007)

*Re: Tax on CFD market maker*



123enen said:


> http://law.ato.gov.au/atolaw/view.h...00001&recStart=1&recnum=8&tot=10&pn=ALL:::ALL




thx enen, will start on my tax calculation this weekend


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## janet_yan (19 October 2008)

*Re: Tax on CFD market maker*

CFDs do NOT trigger CGT tax. Because CFD do NOT trigger Capital Gain. Instead, Section 6-5 income incurred. This is ordinary income (common law income). Capital gain is statutory income. 

The implication for this is if you make losses on CFDs, you do not carry forward it in next year. However, the losses can be deducted against your ordinary income, such as you salaries. 

Refer to Tax Ruling TR 2005/15. 
http://law.ato.gov.au/atolaw/view.h...00001&recStart=1&recnum=8&tot=10&pn=ALL:::ALL


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## robots (19 October 2008)

*Re: Tax on CFD market maker*

hello,

and only income tax implications if carrying on in business like matter

thankyou
robots


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## janet_yan (19 October 2008)

*Re: Tax on CFD market maker*

Hi, 
11. A gain from a financial contract for differences will be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) where the transaction is entered into as an ordinary incident of carrying on a business, or where the profit was obtained in a business operation or commercial transaction for the purpose of profit making. 
12. A loss from a financial contract for differences will be an allowable deduction under section 8-1 of the ITAA 1997 where the transaction is entered into as an ordinary incident of carrying on a business or in a business operation or commercial transaction for the purpose of profit making. 

So, you do not need to carry on a business. As long as the purpose of the transaction is to make profit, which I believe is the common reason for people to invest in CFDs. 

So, as far as my understanding, you need to pay tax on the gain you made. And the nature of the gain is NOT capital gain, however, ordinary income concept applies.


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## robots (19 October 2008)

*Re: Tax on CFD market maker*

hello,

and this from the same document:

15. A gain or loss from a financial contract for differences entered into for the purpose of recreation by gambling will not be assessable income under section 6-5 or section 15-15 of the ITAA 1997 or deductible under section 8-1 or section 25-40 of the ITAA 1997. A capital gain or capital loss from a financial contract for differences entered into for the purpose of recreation by gambling will be disregarded under paragraph 118-37(1)(c) of the ITAA 1997.

so interesting one, anything systematic, structured, organised etc you up for it,

something sporadic, akin to studying the guide on the weekend and placing a bet/trade the following wednesday you in the clear,

thankyou
robots


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## Wysiwyg (19 October 2008)

*Re: Tax on CFD market maker*



janet_yan said:


> So, as far as my understanding, you need to pay tax on the gain you made. And the nature of the gain is NOT capital gain, however, ordinary income concept applies.




It is a capital gain because it is a capital asset disposed of at a profit.


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## janet_yan (19 October 2008)

*Re: Tax on CFD market maker*

Sorry, I dont think so.
where a specific tax ruling exists regarding a particular topic, the Tax Ruling applies, which is the case here. 

20. Financial  «contracts »  «for »  «differences » cannot be assigned, are typically held open for a relatively short period, and do not provide ownership of an underlying asset

22. Financial  «contracts »  «for »  «differences » are productive of a gain or loss stemming from exposure to typically short term financial risk. The risks assumed in financial  «contracts »  «for »  «differences », namely stock indices, individual shares, currencies, financial products, interest rates, and commodities are all the basic subject matter of the financial services industry. 


The above are exactly the case here when you are trading CFDs.

Regarding to gambling, I think it depends on the freqency, the purpose, etc, of the transactions. As per below:
45. We have indicated above that the terms of the financial contract for differences are such as to tend to stamp it as an act of commerce. However, a taxpayer who enters into a financial contract for differences only once, or very occasionally, who has no expertise in the price of the underlying by which the gain or loss of the financial contract for differences will be calculated, does not engage in any income-producing activities of a character bearing some association or connection with the financial contract for differences or its underlying, and, in particular, who gambles in the ordinary recreational way and who has entered into the financial contract for differences in circumstances such that the financial contract for differences may be seen to be part of that recreation may establish that the gain or loss is the product of gambling (and not the result of a profit-making endeavour.)


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## robots (19 October 2008)

*Re: Tax on CFD market maker*

hello,

no worries, you put it on the tax return and I want

thankyou
robots


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## Wysiwyg (19 October 2008)

*Re: Tax on CFD market maker*



janet_yan said:


> Sorry, I dont think so.
> where a specific tax ruling exists regarding a particular topic, the Tax Ruling applies, which is the case here.
> 
> 20. Financial  «contracts »  «for »  «differences » cannot be assigned, are typically held open for a relatively short period, and do not provide ownership of an underlying asset
> ...




Good evening ma`am, the "do not provide ownership"  is correct BUT the CFD provider passes on the capital gains or capital losses to their client.

Therefore capital gains/loss ruling is applied.


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## janet_yan (19 October 2008)

*Re: Tax on CFD market maker*

he
The owner of the underling asset (shares) is liable for any capital gain tax. 

Further, I do not believe what you quoted is from this Tax Ruling. We apply rules, not whatever we personally beliefs, when talking about tax...

That's the benefits of doing CFDS. As it does not trigger CGT. 

Meantime, the CFD trader does not enjoy the franking credits on the dividends, either.


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## robots (19 October 2008)

*Re: Tax on CFD market maker*



janet_yan said:


> he
> The owner of the underling asset (shares) is liable for any capital gain tax.
> 
> Further, I do not believe what you quoted is from this Tax Ruling. We apply rules, not whatever we personally beliefs, when talking about tax...
> ...




hello,

no one owns anything, its a bet janet_yan

refer item 15 again please

with lots of smoke and mirrors, last time I looked the PDS was over 100pgs,

thankyou
robots


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## Wysiwyg (19 October 2008)

*Re: Tax on CFD market maker*



janet_yan said:


> he
> The owner of the underling asset (shares) is liable for any capital gain tax.
> 
> Further, I do not believe what you quoted is from this Tax Ruling. We apply rules, not whatever we personally beliefs, when talking about tax...
> ...





Yes you are right, I found the exact wording in the PDS from my CFD provider.



> Gains
> 
> The ATO has taken the view that gains from trading CFDs will be *assessable* *income*-
> (i) where the CFD is entered into as an ordinary incident of carrying on a business;
> ...






> Capital Gains Tax
> 
> While gains or losses would most often be on revenue account because it is
> expected that the CFD is usually entered into for a profit-making purpose, where it
> ...




*Assessable income* it is.I`m ever so sorry,

regards wysiwyg


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## janet_yan (19 October 2008)

*Re: Tax on CFD market maker*

 

I'm actually a new starter of CFDs... Can you give me any advise? For example, which broker should I choose...which platform is better...

Also, where did you find the information... you said from you CFD provider...but where?? You mean, from your CFD provider website???

Thanks!


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## Wysiwyg (19 October 2008)

*Re: Tax on CFD market maker*



janet_yan said:


> I'm actually a new starter of CFDs... Can you give me any advise? For example, which broker should I choose...which platform is better...
> 
> Also, where did you find the information... you said from you CFD provider...but where?? You mean, from your CFD provider website???
> 
> Thanks!




Actually janet there is this onthe same page which I just read which says *ASSESSABLE CAPITAL GAIN*

My tax agent treated it as such.



> Capital Gains Tax
> 
> While gains or losses would most often be on revenue account because it is
> expected that the CFD is usually entered into for a profit-making purpose, where it
> ...


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## Wysiwyg (19 October 2008)

*Re: Tax on CFD market maker*



janet_yan said:


> I'm actually a new starter of CFDs... Can you give me any advise? For example, which broker should I choose...which platform is better...




There are many good things said about Interactive Brokers.

Remember  they are "mirror" markets of the underlying vehicle. 



> Also, where did you find the information... you said from you CFD provider...but where?? You mean, from your CFD provider website???
> 
> Thanks!




Yes my CFD provider PDS on their website.


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## Trembling Hand (20 October 2008)

*Re: Tax on CFD market maker*



Wysiwyg said:


> There are many good things said about Interactive Brokers.
> 
> Remember  they are "mirror" markets of the underlying vehicle.




Interactive Brokers ISN"T a cfd provider!!!!!!!!!!!!!!!!!!!!!!!


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## korrupt_1 (20 October 2008)

*Re: Tax on CFD market maker*

I paid CGT on my CFD transactions.

I summed up nett gains in the 'other income section'

I then summed up the nett loses in the 'other deduction section'

I paid tax on the difference.


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## Wysiwyg (20 October 2008)

*Re: Tax on CFD market maker*



Trembling Hand said:


> Interactive Brokers ISN"T a cfd provider!!!!!!!!!!!!!!!!!!!!!!!




Gee thanks TH.I`m with IG Markets and thought they were all CFD services.

Thanks for your correction.


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## wayno76 (13 March 2009)

*Re: Tax on CFD market maker*

Gday guys and girls, I am a little confused about the tax implications of cfds. There are contradictory answers in this thread. I currently scalp forex au/usd and make one trade a day of 3.5 contracts I put a stop of 20 pips and set my limit at 20 pips sometimes let it run if I'm at the comp at the time. I have consistently made between $2000 and $5000 a week since start of the year. will I have to declare this or is it considered gambling. It is not my only income as i have a fulltime job in construction and only trade after work. I cant seem to get a straightforward answer from the ato or my cfd provider. Any info is greatly appreciated thanks.


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## AlterEgo (13 March 2009)

*Re: Tax on CFD market maker*



wayno76 said:


> Gday guys and girls, I am a little confused about the tax implications of cfds. There are contradictory answers in this thread. I currently scalp forex au/usd and make one trade a day of 3.5 contracts I put a stop of 20 pips and set my limit at 20 pips sometimes let it run if I'm at the comp at the time. I have consistently made between $2000 and $5000 a week since start of the year. will I have to declare this or is it considered gambling. It is not my only income as i have a fulltime job in construction and only trade after work. I cant seem to get a straightforward answer from the ato or my cfd provider. Any info is greatly appreciated thanks.




You'll have to declare it.


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## prawn_86 (13 March 2009)

*Re: Tax on CFD market maker*



AlterEgo said:


> You'll have to declare it.




Are you sure about this? Got a link?

I thought CFDs were gambling income?


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## Trembling Hand (13 March 2009)

*Re: Tax on CFD market maker*



prawn_86 said:


> Are you sure about this? Got a link?
> 
> I thought CFDs were gambling income?




Nope. Its only considered gambling if its the odd (1 or a couple) punts.

What wayno is describing is carrying out a business activity and needs to declare that.

DYOR and all that jazz.


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## skc (13 March 2009)

*Re: Tax on CFD market maker*



prawn_86 said:


> Are you sure about this? Got a link?
> 
> I thought CFDs were gambling income?




They are in the UK, but not here in Aus.


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## prawn_86 (13 March 2009)

*Re: Tax on CFD market maker*



Trembling Hand said:


> Nope. Its only considered gambling if its the odd (1 or a couple) punts.
> 
> What wayno is describing is carrying out a business activity and needs to declare that.
> 
> DYOR and all that jazz.




Ok i guess that makes sense


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## sinner (13 March 2009)

*Re: Tax on CFD market maker*



prawn_86 said:


> Are you sure about this? Got a link?
> 
> I thought CFDs were gambling income?




Anyone using MM CFDs should be checking the Product Disclosure Statement for their bucketbroker, this is *definitely* mentioned in the PDS provided by IG!

Which you can of course, find on their website (and have it shoved down your throat when you sign up).


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## wayno76 (13 March 2009)

*Re: Tax on CFD market maker*



sinner said:


> Anyone using MM CFDs should be checking the Product Disclosure Statement for their bucketbroker, this is *definitely* mentioned in the PDS provided by IG!
> 
> Which you can of course, find on their website (and have it shoved down your throat when you sign up).




Thanks sinner, I just checked out the IG PDS and its pretty clear the ATO doesn't consider CFD's gambling at all.

Paragraph 118-37(1)(c) of the ITAA 1997 provides capital gains and capital losses arising from "gambling, a game or a competition from prizes" are to be disregarded. The ATOs position is that capital gains and capital losses from trading CFD's do not qualify for this or any other exemption in the ITAA 1997


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