Australian (ASX) Stock Market Forum

Tax treatment of CFD losses

Jump to new
Re: Tax treatment on CFD losses

jono1887 said:
Well I earnt 17k from trades and 1k from interest and $800 from real work :p: I suppose trading is my primary source of income for the last year. So can I classify myself as a trader?
Click to expand...

You can if you want to, you just have to be able to justify it if audited.
 
Re: Tax treatment on CFD losses

Hey guys - you need to read the 2005 ATO ruling on CFDs that sets out how they are taxed.

Google for "Taxation Ruling TR 2005/15" without the quotes.

The ruling states that capital gains tax rules do not apply. However strict business tests also would appear not to be necessary either.
 
Re: Tax treatment on CFD losses

Hello mates

Its tax time and I had a hard time trying to determine if the $25k losses I incurred trading CFDs last FY qualified as an income deduction on my ordinary income (I am on a full time job drawing a salary), or shoud I bring forward the $25k losses as a CGT losses to offset any CGT gain in future. :banghead:
I would very much prefer to treat this losses as a deduction on my ordinary income. There is no certainty that I will make enough or any CGT gain in future anyway :eek:

I had traded frequently (on a daily basis) from 1/7/09 to Feb 10 (had to stop as I made too much losses). Does this qualify as carrying on a business of trading CFDs?

This is what I gathered from googling.
There are 3 ways that CFDs can be taxed.

The first is if you’re carrying on a business of trading CFDs. If you’re doing this any gains or losses are either revenue or expenses from that business, and you’re not eligible for CGT. You can show a business plan, frequency of activity, a systematic approach to trading – the elements of a business are there, in that you’re organised. If you satisfy those aspects you fall into that first bucket.

The second is if you enter the CFD position to make a profit. You’re not carrying on a business of trading, but you have bought the CFD to make money – which is different to buying shares for a profit. When you buy a share, you can say that it’s an investment because you’re deriving part of your profit from the dividend stream. The CFD doesn’t have that income stream, so there’s no chance of you making money from a CFD other than a gain on sale. In this case, you’re taxed on capital gain, and losses are deductible.

The third is if you are using the CFD for recreational gambling – in which case any profit on the CFD is tax-free. But that has to be very sporadic, wholly recreational activity – it has to be subject to chance. You’re effectively saying that you’ve entered the CFD transaction blindly, on pure chance

Cheers
Jackpot
 
Re: Tax treatment on CFD losses

hello,

if you put the issue of CFD aside, as this could be the same as betting on horses, tennis, football, reality TV shows,

the issue is as per item 1 on your post, as long as you can show structure, systems, profits and losses, print outs, you would be classed as trader so its all income

the only concern is that you have a full time job and maybe the ATO will argue you really only participating in a hobby (hobby's cost money)

thankyou
professor robots
 
Re: Tax treatment on CFD losses

The ATO website has actually provided an example of what would be considered a share trader. Here is what was on the website:

Examples
Example 1 – Share trader

Molly is an electrical engineer. After seeing a television program, Molly decides to become involved in share trading activities.

Molly sets up an office in one of the rooms in her house. She has a computer and access to the internet.

Molly has $100,000 of her own funds available to purchase shares and, in addition, she has access to a $50,000 borrowing facility through her bank.

Molly conducts daily analysis and assessment of developments in equity markets. The resources she uses include financial newspapers, investment magazines and stock market reports. Molly's objective is to identify stocks that will increase in value in the short term to enable her to sell at a profit after holding them for a brief period.

In the year ended 30 June 2001, Molly conducted 60 share transactions: 35 buying and 25 selling. The average buying transaction involved 500 shares and the average cost was $1,000. The average selling transaction involved 750 shares and the average selling price was $1,800. All the transactions were conducted through stockbroking facilities on the internet. The average time that Molly held shares before selling them was twelve weeks. Molly's activities resulted in a loss of $5,000 after expenses.

Molly's activities show all the factors that would be expected from a person carrying on a business. Her share trading operation demonstrates a profit making intention even though a loss has resulted. Molly’s activities are regular and repetitive, and they are organised in a business-like manner. The volume of shares turned over is high and Molly has injected a large amount of capital into the operation.

I guess from the above example, I can considered myself to be a trader thus able to deduct my trading losses against my ordinary income. :)

Any feedback would be appreciated.

Thanks
JP
 
Re: Tax treatment on CFD losses

My understanding is as above, not a business but as a profit making enterprise. As such where on the tax return do you claim for a loss?
Any help appreciated
 
Re: Tax treatment on CFD losses

found this

law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~derivative~basic~exact:::AND~trading~basic~exact&target=JA&style=java&sdocid=AID/AID201056/00001&recStart=1&PiT=99991231235958&recnum=4&tot=122&pn=ALL:::ALL

profits are placed at 24-other income
losses go in d16-other deductions
 
Top