Edited version of private advice

Authorisation Number: 1052194455860

Date of advice: 21 February 2024

Ruling

Subject: Contract for difference - revenue capital

Question

Are the proceeds from your contract for difference (CFD) trading revenue or capital in nature?

Answer

The proceeds from your CFD trading are revenue in nature. As outlined in Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for differences income gained through CFD trading is assessable income on revenue account under either section 6-5 or section 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997).

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have been trading in shares and derivatives for several decades but have settled on trading in a select group of CFDs on technical indicators in recent years as you have become comfortable with the activity and your practice of trading in these instruments.

You aim to profit from this activity and have been inspired in your trading by the potential for profit you have experienced trading these instruments in previous years.

You work to a business plan in your CFD trading that is based on strategies you have developed through your trading experience.

You have, through training and experience, been exposed to markets across a number of tradeable financial products. You have settled on your current selection of tradeable products as you believe they offer good opportunities. You have developed some expertise in dealing in these products and focus on a carefully selected set of analytical tools to inform your trading activity.

You monitor markets for opportunities to profit from trade in these products on a regular and consistent basis.

You have completed professional training in this activity.

You have other full-time work.

In the 2022-23 financial year you invested less than $50,000 in capital in your trading activity, and made an overall loss of more than $20,000. You also made losses in the 2020-21 and 2021-22 financial years. You are trading at a profit in the current financial year.

You monitor market positions throughout the day.

You monitor Australian and overseas markets.

You make trading transactions on average a little less than once every 3 days, making multiple transactions on the days that you are trading.

You stopped trading for several periods of 2 or more weeks throughout the relevant year as your funds were tied up in longer term positions with better prospects than those offered by the available short-term prospects.

You estimate you spend 3 hours a day on your trading activity.

While you held contracts on average for a little over 2 days two thirds of your contract purchases were held for less than a day.

You use a retail account on an online market trading platform for your CFD trading because of the tools and options if offered, and its ease of use.

Under your agreement with this provider all your dealings were directly with them through their market structure for a commission and you are liable to them for other trading related fees.

All trading transactions through the online trading platform are leveraged. As your liability for the margin on this leveraged finance varies in response to market movements you may be called on, in a margin call, to provide additional funds.

Interest is charged on the leveraged finance you are using to hold overnight positions.

In the relevant financial year you paid interest on your leveraged finance.

You also pay other commissions and fees on transactions at rates that are advised by the platform from time to time.

If you do not provide the additional funds required by a margin call your position on the trading order or account could be closed out by the platform to the point where your overall position was liquified.

The trading platform is only authorised to recover monies to the extent that they were being held by you in your account with the platform.

Your trading strategy is to use market indicators to pick emerging trends and look for opportunities to purchase contracts for difference in products that are underbought or oversold so you can capitalise on these trends.

You often open and close positions for small differences in the same day, and this is typical for trade in these instruments.

You enter all your transactions manually.

You balance expected returns against risks in your trading activity in line with a neutral to risk tolerant reward to risk ratio.

You match the amount you are prepared to invest in each transaction against the strength of the indicator movements you are reading.

To manage the risk associated with positions held overnight you use industry standard mechanisms such as stop loss and limit profit parameters.

Your online access to the trading platform allows you to view your open positions and the indicators relating to these positions and other trading opportunities on-screen. In addition, the platform provides daily trading statements and monthly reports giving information such as interest charged, dividends paid to you, and commissions on foreign currency exchanges.

You use this online access and the available reports to monitor your open positions and to scan for further opportunities to profit from your trading activity, and to monitor and manage your risks.

You consider your trading activity as a sideline to your full-time employment but as you are approaching retirement might also consider transitioning to this activity for more than a supplement in later years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-15

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