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Tax on CFDs

Discussion in 'Accounting, Tax & Legal' started by Punter, 9th May, 2008.

  1. Punter

    Punter Punter

    29th Jun, 2006
    Want to know how income tax is charged on CFD transactions.

    I believe, experts in this forum must have already discussed this topic. So just help me find the thread which must be already existing.

    I understand that there is no tax on money made in CFDs as it is not a capital investment. It is just like lottery. This also means that one does not get tax rebate if one looses in CFDs.

  2. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    Hi Punter,

    Not that I am an accountant, but I would disagree. Not sure why you think it wouldn't be taxable, lotteries are pure "luck".

    While CFDs are EXTREMELY risky, they are a derivative (yes, some people may think they are like lottery because of the extreme risk associated).

    Similarly to buying and selling financial supplies, you make a capital gain (or loss). Even the ATO says CFDs are "betting" (GSTD 2005/3 - Goods and services tax: are contracts for difference and financial spread betting contracts financial supplies? (As at 22 June 2005))

    Back to your question, the Australian Tax Office answers it here (TR 2005/15 - Income tax: tax consequences of financial contracts for differences (As at 31 August 2005))


    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."

    So, according to the ATO, yes, CFDs are tax assessable.



    PS Before doing anything speak to your registered Accountant or Tax Adviser.
  3. Rob G.

    Rob G. Well-Known Member

    6th Jun, 2007
    Melbourne, VIC
    I find this extremely amusing ... the Commissioner wants things all his way.

    We know that individuals actively trading in shares/units that provide distributions (i.e. equity), will be regarded as mere investors. So gains or losses will be on the capital account and will be assessed for CGT.

    However, he regards CFD's as either a full-on commercial business/scheme or mere gambling.

    However, the line is never clear where chance is a strong factor. Basically, if you approach it professionally, have a system or even if you are a consistent winner then you will be deemed a business and fully assessed, or carrying out a profit making scheme.

    But if you are an overall loser, then he will argue you are merely gambling and you cannot claim losses.

    BUT if he argues you are carrying on a business, does Division 35 apply which may prevent you claiming losses for most investors.

    I would argue I am not a business, but I am merely conducting a profit making scheme so I can claim my losses under s.25-40.

    CFDs have been around for a few years not, but there is still so much uncertainty about their treatment that everyone needs a professional opinion.

    Even then, they may need to apply for a ruling - which is effectively the Commissioner creating the law unless somebody is prepared for legal action.

    The problem is the taxpayers wealthy enough for serious court action would not have any uncertainty as they are probably already large scale operators !!!

    Shame on the system ...