CFD is not tax assessable

kr1zh · 5 October 2007

CFD does not require to be reported to ATO.

"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."

EZZA · 5 October 2007

Interesting post, so does this mean that there is not tax to be paid on the profits. and you would lose the tax offsets on losses, and deductions that you would claim on costs ie. interest or monthly fees that you would normally claim on.

Or is this subject to interpretation?, was looking to get into cfd's so may be the go if this is the case.

CanOz · 5 October 2007

EZZA said:
Interesting post, so does this mean that there is not tax to be paid on the profits. and you would lose the tax offsets on losses, and deductions that you would claim on costs ie. interest or monthly fees that you would normally claim on.

Or is this subject to interpretation?, was looking to get into cfd's so may be the go if this is the case.

A search through ASF will yield a clearer explanation. Basically it depends on if your trading or just taking the odd punt. If you trading then its a gain/loss - income/deduction scenario.

Cheers,

CFD · 5 October 2007

I'm thinking if you make net profits it's taxable and if you make an overall loss it's not tax deductible, certainly does not support the claim " CFD is not tax assessable"

kr1zh · 5 October 2007

It's clearly written there by ATO:
"A capital gain or capital loss from a financial contract for differences entered into for the purpose of recreation by gambling will be disregarded..."

It is also confirmed today by my tax agent that my capital gain is not being reported to ATO.

CFD said:
I'm thinking if you make net profits it's taxable and if you make an overall loss it's not tax deductible, certainly does not support the claim " CFD is not tax assessable"

CanOz · 5 October 2007

kr1zh said:
It's clearly written there by ATO:
"A capital gain or capital loss from a financial contract for differences entered into for the purpose of recreation by gambling will be disregarded..."

It is also confirmed today by my tax agent that my capital gain is not being reported to ATO.

That ruling was in 2005 yes? I think there was another cleaer ruling just this year. Again, its been discussed here as well...i'll try and have a look.

Be careful about what your tax agent says, trust me....just don't go spending the gain to quick, the ATO might come a knock'in yet....my tax is to be done soon and will include CFD trades, so i'll post the outcome.

Cheers,

So_Cynical · 5 October 2007

Whats the ATO's definition of a CFD gambler?

At what point dos a Gambler become a Trader?

Fab · 5 October 2007

CanOz said:
That ruling was in 2005 yes? I think there was another cleaer ruling just this year. Again, its been discussed here as well...i'll try and have a look.

Be careful about what your tax agent says, trust me....just don't go spending the gain to quick, the ATO might come a knock'in yet....my tax is to be done soon and will include CFD trades, so i'll post the outcome.

Cheers,

What about Minis which work in a very similar way as the CFDs and are issued by ABN Amro. I find them much better than CFDs. I am wondering if they would be considered as gambling as well

CFD · 6 October 2007

So_Cynical said:
1. Whats the ATO's definition of a CFD gambler?
2. At what point dos a Gambler become a Trader?

1. That's the question Krizh should be asking. (and how do you prove it to their satisfaction)
2. When it's in the ATO's best interest to allow you to make capital loss deductions!

RichKid · 6 October 2007

Please seek independent legal and professional advice about this matter, nothing on ASF should be construed as advice.

In my opinion, it appears that the reference is to gambling (consider the legal definition for taxation purposes) as a hobby (recreation). As opposed to trading CFD's as a business or with a view to a profit rather than for mere emotional enjoyment. All too complicated to resolve quickly.

There has been some prior discussion of it elsewhere on ASF in the past. Be careful to read the PDS of each CFD provider in relation to taxation consequences of trading CFD's.

CFD · 7 October 2007

I'm surprised the ATO opened up this grey area to CFD trading. They have this "big grey area" with those betting on the horses (dogs etc). They are very selective about who they call a professional punter and claim income tax from winnings, in case they open the flood gates to tax deductions on losses.

notneo · 7 October 2007

It might just go to show that the ATO feels people will generally lose more than they will gain from CFDs

I think they might change their stance when the ASX traded CFDs are in full swing.

At the moment I guess we really are gambling against our providers.. reading any PDS generally gives off that vibe to me anyway.

jiggy · 8 October 2007

So if you are a professional trader you profits/losses are classed as income which has to be declared?????

EZZA · 10 October 2007

CFD said:
I'm surprised the ATO opened up this grey area to CFD trading. They have this "big grey area" with those betting on the horses (dogs etc). They are very selective about who they call a professional punter and claim income tax from winnings, in case they open the flood gates to tax deductions on losses.

yeah, this is a massive grey area. I've currently got a margin lending a/c.
and have never traded a cfd's but if you can avoid getting tax doing it why not?

recreation is such a broad term i'm sure there are people out there that trade shares for recreation, whats the diff with cfd's just the fact that its is highly leveraged.

i think this ruling will work in the favour of investors, making gains without needing to be taxed by classifying cfd trading as "recreational".

just imagine this scenario, average bloke making 50k yr on his job. Trading cfd's on the side and recreationally pulls in another 50k on cfd's. essentially making 100k and only getting taxed on half. Would this still be classified as recreation. Cause i reckon there will be fair bit of this happening.
That'll probably be my aim to make as much as i can without getting taxed.

Was too scared to trade cfds in the first place, but with the new ruling i'll need to take a punt hey!

will need to chat to an accountant first to clarify this point though.

jiggy · 10 October 2007

interesting to see if there is or has been a ruling on this tax issue with cfd's

Whiskers · 11 October 2007

kr1zh said:
It's clearly written there by ATO:
"A capital gain or capital loss from a financial contract for differences entered into for the purpose of recreation by gambling will be disregarded..."

It is also confirmed today by my tax agent that my capital gain is not being reported to ATO.

kr1zh, you have taken one paragraph literally, but totally out of context. You cannot intend to make a profit and just argue that you entered into the CFD for the purpose of recreation by gambling to avoid tax.

Whether a CFD is entered into for the purpose of recreation by gambling is determined by case law and further explained in the ruling. You quote from par 15 should be read in the context of the whole ruling. The following paragraphs highlight the main points.

If you have any doubts you can always get a private ruling from the tax office for your specific circumstance. I would then change tax agents.

SIZE="3"]Explanation[/SIZE]

Ordinary incident of carrying on a business
16. It is clear that a gain or a loss from a financial contract for differences will be respectively assessable income under section 6-5, or 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.

17. Whether there is a business being carried on is a question of fact and involves an inquiry into matters such as whether the transactions are entered into in a systematic, organised and ‘businesslike’ way; the repetition or regularity of the transactions; the scale of the transactions; whether the transactions are related to, or part of, other activities of a businesslike character; the purpose of the taxpayer; the degree of skill employed in how the taxpayer engages in the transactions.

Business operation or commercial transaction for the purpose of profit-making
19. A gain or a loss from a financial contract for differences will be respectively assessable income under section 6-5 or an allowable deduction under section 8-1 of the ITAA 1997 where the profit or loss was made in a business operation or commercial transaction for the purpose of profit making.

66. The Tax Office view is that financial contract for differences transactions and horse race betting are different in character. In particular, transacting with a financial contract for differences is closer to the skill end of the chance-to-skill spectrum and the commercial end of the private/recreation-to-commercial spectrum than a bet on horse racing.

67. Transacting with financial contracts for differences is essentially a commercial activity of investing in a cash-settled derivative, albeit in the legal form of a contract of gaming and wagering, in relation to an underlying financial risk. The action of purchasing financial risk is essentially commercial. In contrast, although there are elements of the horse racing industry which are essentially commercial – for example, the businesses of breeding and training horses, the action of purchasing risk on horse races is essentially recreational, and only could become commercial through the carrying on of a business.

PhoenixXx · 21 October 2007

Whiskers said:
kr1zh, you have taken one paragraph literally, but totally out of context...

Couldn't agree more with Whiskers here. But the 'grey' area is how often you trade within a financial year is considered gambling or recreation. If you trade only once or twice, then we could basically refer that as gambling. But if you trade on regular basis, forget about it. See Whiskers' quotation on his post in par.16 for further explanation.

>Apocalypto< · 21 October 2007

kr1zh said:
CFD does not require to be reported to ATO.

"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."

i believe trading in CFD's is taxable as its a form of income.

Last I heard Spreadbetting was in the courts with a ruling pending.

now if that is classified as gambling like it is in the UK, I will be opening a IG spread bet account

yieeeeeeeeeeeeeeeeeeeee

PhoenixXx · 21 October 2007

By the way, can anyone fill me in while i'm doing this on my e-tax? Does income on CFD's filled on 'capital gains' or 'other income' or something else? Thx heaps guys

monkey187 · 25 October 2007

yeh it was the same issue with poker players. how do you determine who is a professional and who plays poker as a 'hobby' or as a 'gamble' - i believe there was a big debate when Joe Hasham took home the WSOP - the ATO wanted to smash him a big tax bill...

dont remember what the outcome was, but the arguement was that if he was just a hobbiest he didnt have to pay the bill.

--

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CFD is not tax assessable

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CFD is not tax assessable

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