CFDs and Tax?

[Paul Ellis]

Howdy all!

For the first time this FY I have done some CFD trading and made a loss.

I am now about to do my tax in Etax and not sure about the following -

1. I am not a full time trader but had over 100+ trades over the last year between shares & CFD - should I consider myself a Share Trader or Shareholder?

2. Should my CFD loss be a) an allowable deduction or b) a loss from a business?

I have looked online and found a topic on here from 2008 but doesnt seem to be any clear rules. I also found this CFD Guide thing with but it only has basic info about tax -

http://introtocfd.blogspot.com/

appreciating any help

ps - apologies if this should be in derivatives - not sure if its a general tax question or a cfd question

 

[awg]

Hi Paul

use the "advanced search" feature on this forum,

the topic has been discussed very recently.

answer...depends

 

[Paul Ellis]

thanks! found it now...still no clearer tho!! Bloody ATO...

 

[Krusty the Klown]

Paul, for most people, CFD's are treated using the capital gains provisions. A CFD is a contract, and a contract is an asset for tax purposes, the same way a share is.

So your losses should be treated as capital losses and offset against any other capital gains. Your brokerage costs should be added to your cost base of each CFD.

If you treat your profits from trading shares as ordinary income, which most people DON'T, then you can treat your CFD's as a business loss and offset against other ordinary income.

 

[jono1887]

Paul, for most people, CFD's are treated using the capital gains provisions. A CFD is a contract, and a contract is an asset for tax purposes, the same way a share is.

So your losses should be treated as capital losses and offset against any other capital gains. Your brokerage costs should be added to your cost base of each CFD.

If you treat your profits from trading shares as ordinary income, which most people DON'T, then you can treat your CFD's as a business loss and offset against other ordinary income.

But isnt the contract essentially a bet? There is no asset involved, you are not holding anything, its just a bet/gamble for movement in something. You dont actually hold any physical asset, so how can it be CGT?

 

[Krusty the Klown]

But isnt the contract essentially a bet? There is no asset involved, you are not holding anything, its just a bet/gamble for movement in something. You dont actually hold any physical asset, so how can it be CGT?

The treatment of CFD's is the same for any other financial derivative.

There is an argument that if you only do one trade in an income year, yes you can treat it as proceeds from gambling and I don't see a problem with that.

But if you are trading regularly then the activity tends to resemble a business activity, particularly if the methods of determining successful trades uses the same analyses and processes of trading other financial instruments for profit. The contract for difference itself is just another instrument to trade.

In terms of your question, you could say the same thing about index futures, it is just a contract with no physical asset involved and settled in cash, but uses the CGT provisions.

Tax law treats a contract as an asset, regardless of whether there is a physical asset involved. For example, lets say I sign a contract to provide a service to a second party. I then cannot provide the service, so I sell the contract of provision of services to a third party for a profit. There has been a capital gain generated on top of the financial consideration of the original contract. CGT is then payable on that amount. The original amount could be treated as trading income depending on the circumstances.

An example of this could be buying an option to purchase a property, and then selling the option to someone else.

 

[jonojpsg]

Howdy all!

For the first time this FY I have done some CFD trading and made a loss.

I am now about to do my tax in Etax and not sure about the following -

1. I am not a full time trader but had over 100+ trades over the last year between shares & CFD - should I consider myself a Share Trader or Shareholder?

2. Should my CFD loss be a) an allowable deduction or b) a loss from a business?

I have looked online and found a topic on here from 2008 but doesnt seem to be any clear rules. I also found this CFD Guide thing with but it only has basic info about tax -

http://introtocfd.blogspot.com/

appreciating any help

ps - apologies if this should be in derivatives - not sure if its a general tax question or a cfd question

I was advised by the ATO that I could claim CFDs as a business income/loss, eg against my other personal income. This requires that you have at least $20000 worth of trading income/loss for the year though. Don't think you can do this with shares though??

 

[Krusty the Klown]

It depends on your personal situation in ALL cases.

Everybody's personal circumstances are different, so if treating CFD profit as ordinary income, it may be yes in some cases, no in others.

Best to see a registered agent or adviser even at least once to clarify your position, as the ATO staff, while well meaning are not accountable for personal advice. They can only read off the same website as you and I.