CFD Tax - Foreign Income quarantine

[kuoyoong]

Hi all,

Re: CFD Trading - IG Markets Tax treatement of US / global / futures / foreign exchange instruments.

Can someone please assist me.

I have traded CFD's for the last year with IG Markets. I have traded US stocks, AUS Stocks, Indicies, Oil gold Forex etc etc.

IG Markets provides an annual tax reports or ad hoc one on request detailing profits and losses, commissions, dividends etc etc for a specific time period.

When i trade an index (eg s&p, or US stock, FTSE etc), IG markets immediately converts the AUS $ to a foreign currency. I am assuming behind the scenes they will hedge their own position. Any profits or losses i make i can just convert back to AUS currency.

So eg, i buy 1 s&p mini forward contract. The AUS is converted to $US 50 equivalent and then i profits 1 pt and my account will show a 50$ profit $US. Then I can request this to be converted back to AUS currency at the exchange rate on the request.

The annual tax report splits the currencies up into the foreign currencies. So it will detail a $50 profit in US dollar.

My accountant has told me that there is no specific ruling from the ATO that states this can be treated as AUS income as the tax report has split this into 'foreign income' currencey US. I have searched the forums here and on that ATO etc and found little information.

The only rule i hvae found is that from next FY08 there is a foreign income legislation ruling that allows all foreign income and AUS income to be offset against each other.

This doesn't help me because i believe i should be able to claim the $US CFD loss on the tax statement as AUS dollar.

Does anyone have experience with this? And can they point me to anywhere where i can clearly show my accountant that this can be claimed as AUS$.

The physicaly transaction takes place in an australian acc, as well whether a market maker Hedges against my position is entirely up to them. As well I am purchasing CFD's on a synthetic market maker model, meaning there is no physical exchange of contracts like options. *BTW I trade US options.

Cheers.

Any ideas?

 

[Naked shorts]

Any ideas?

Hmm I would suggest finding a tax lawyer. You can find plenty on Google. The are supposed to know all these issues like the back of their hand...

 

[kuoyoong]

Thanks for your reply. I have spokem to tac professionals and same response, either they know nothing about cfd's or there is no clear ruling on this. On face value it should be foreign income but a cfd trader will understand there is a valid argument against it being foreign income.

I might reword my question.

Does anyone trade cfd's with IG Markets and trade forex, indicies, commodities, futures etc ? And if so, how has their accountant dealt with the taxation of it. ie, have they included it as foreign or AUS income.

Thanks.

 

[Naked shorts]

Thanks for your reply. I have spokem to tac professionals and same response, either they know nothing about cfd's or there is no clear ruling on this. On face value it should be foreign income but a cfd trader will understand there is a valid argument against it being foreign income.

I would say there is a ruling on it, its just your tax professionals, may not be that professional. When it comes to lawyers, the common saying "You get what you pay for" seems to be true.

May I suggest, better legal advise? But if you have good legal advise, please do not hesitate to correct me,

All the best!

p.s. If you do end up finding a professional that knows much about CFDs, let me know. I myself are looking for one now

 

[kuoyoong]

Thanks for your reply. Sounds like you are looking for someone who actually knows about cfd's as well. Just FYI, i did ask a 'professional' @ $400 an hour same answer. It's foreign income. Otherwise ask for a Tax ruling. (Maybe i'm looking in the wrong place)

Have you traded cfd's in the scenario i am talking about?

Ta.

 

[Naked shorts]

Thanks for your reply. Sounds like you are looking for someone who actually knows about cfd's as well. Just FYI, i did ask a 'professional' @ $400 an hour same answer. It's foreign income. Otherwise ask for a Tax ruling. (Maybe i'm looking in the wrong place)

Have you traded cfd's in the scenario i am talking about?

Ta.

No, but I plan to have this problem in the very very near future (I currently only trade traditional shares). Can you tell me what "IG markets" are like for CFD's? I cant find much information about their fees...

 

[kuoyoong]

Take a look at their website. Their fees are listed i think under the contracts section. Generally it's a % commision on your trade value on the buy and then sell side. An extra % for guaranteed stops. And margin that needs to be held for the specific stock or contract.

Also take a read about DMA and Market maker model cfd's. They are different models and offer different advantages and disadvantages.

Watch for expensive commission costs which rack up if you trade a lot. As well make sure you position size against a % risk on your portfolio. I'd suggest using guaranteed stops (more expensive) but this will limit your risk in case there is a big gap on the price and you are holding a very big position. At least you can sleep at night knowing you can't lose more than you're set.

If you're trading very short term then guaranteed stops will eat into your profit taking so probably forget them but manage the trade very closely in case of price gaps.

You might know all i've said so please ingore anything blatantly obvious.

I'm surprised that no one can answer the question i've asked. Anybody???

 

[Naked shorts]

Hey I found this site,

http://www.compareshares.com.au/adv16.php

It seems that you are able to ask the professional questions... perhaps he may be of excellent free help to you?

 

[korrupt_1]

Does anyone trade cfd's with IG Markets and trade forex, indicies, commodities, futures etc ? And if so, how has their accountant dealt with the taxation of it. ie, have they included it as foreign or AUS income.

FWIW... my gains on FX and Indices were treated as converted AUD income for regular Australian taxation purpose. My tax agent was fine with that.

 

[kuoyoong]

Thanks for your reply. Korrupt, can you please let me know these questions:

Are you with IG Markets?
Did you provide your own tax details (ie your own spreadsheet) or your provider gave your an annual report?
Did the report has them itemised as US $?

Otherwise are you in Melbourne, maybe i need to use your Tax agent if you don't mind me getting his/her details.

Thanks very much, appreciate they you took the time to answer.

 

[korrupt_1]

Thanks for your reply. Korrupt, can you please let me know these questions:

Are you with IG Markets?
Did you provide your own tax details (ie your own spreadsheet) or your provider gave your an annual report?
Did the report has them itemised as US $?

Otherwise are you in Melbourne, maybe i need to use your Tax agent if you don't mind me getting his/her details.

Thanks very much, appreciate they you took the time to answer.

Yes I trade some through IG Markets.

IG Markets did not give me a summerised report for tax purpose. I have been keeping a copy of all my statements and recorded every transaction in a spreadsheet. I summerise all trades - some 700 trades in the last FY - and presented it as a balance sheet to my Tax Agent. He was happy with what I did after I explained how I derived at each of the numbers and said as long as I can back up my numbers, it is fine.

When I make a gain in a foreign currency, I immediately convert that amount to AUD and add that to my record as a AUD loss/profit.

I do not represent any foreign currency in my tax submission.

No, I am in Adelaide.

Please be aware that this is not a tax advice - just my personal experience. My trading circumstances could be very much different to yours and you must seek professional assistance to clarify it up.

As mentioned, CFD is a grey area and it really is a case-by-case ruling.

 

[Trembling Hand]

When I make a gain in a foreign currency, I immediately convert that amount to AUD and add that to my record as a AUD loss/profit.

I do not represent any foreign currency in my tax submission.

Korrupt do mean that you actual get IG to do the currency conversion on every non AUD trade?? that is convert the P or L back to AUD?

If not doing the "calculation" yourself at the time of the trade will not give you a true P & L for the trades.

 

[korrupt_1]

Korrupt do mean that you actual get IG to do the currency conversion on every non AUD trade?? that is convert the P or L back to AUD?

If not doing the "calculation" yourself at the time of the trade will not give you a true P & L for the trades.

I physically get the foreign currency converted to AUD at the end of the day on the day that trade was made at the current exchange rates.

At the end of the process I have a nett P/L in AUD for that trade. That is the value that goes into my records.

Just wondering TH, how do you do it? Do you convert non-AUD immediately or hold it as foreign and declare it as non-AUD P/L on your tax?

 

[Trembling Hand]

I physically get the foreign currency converted to AUD at the end of the day on the day that trade was made at the current exchange rates.

At the end of the process I have a nett P/L in AUD for that trade. That is the value that goes into my records.

Just wondering TH, how do you do it? Do you convert non-AUD immediately or hold it as foreign and declare it as non-AUD P/L on your tax?

I just do it at the end of the month to close off the accounts month on month.

What currency your P & L is in on any day is irrelevant. Its only the monthly, quarterly or yearly P & L that your accountant or tax man cares about depending on your tax reporting.