Tax on CFDs
When Contracts for Difference (CFDs) were first introduced to Australia, there was no tax payable on income derived from CFD trading because they were treated as gambling. While many would say there is very little difference between Contracts for Difference (CFDs) and gambling the ATO did beg to differ. They very quickly introduced legislation that directly targeted Contracts for Difference (CFDs) before anyone could file a tax return.
Always Consult a Tax Advisor
When considering the implications of tax on CFD trading for your individual circumstances, you should always contact a tax adviser. Your specific situation may be unique and not covered by the guidelines below. The outline that follows is a general guide to the treatment of Contracts for Difference (CFDs) for tax purposes in Australia.
Income from CFD Trading
Any profit made when trading CFDs is treated as taxable income, and any losses made reduce taxable income. So the income for tax purposes is the net income calculated by adding up all your profits and taking away all your losses.
Deduct Your CFD Related Expenses
Any expenses associated with trading CFDs can be tax deductible. This includes costs like internet fees, any interest, brokerage or trading platform charges. These can be claimed to reduce your taxable income.
Capital Gains Tax and CFDs
Holding a CFD position for 12 months or more to claim a capital gains discount is not a useful strategy when trading CFDs. Your gain or loss is treated as income so capital gains tax does not apply. Likewise franking credits on dividends are not received when trading CFDs so these cannot be claimed.
Tax Considerations If You Are Not In Australia
There are a few things to watch if you are outside of Australia as well and once again tax advice from a local accountant is important. In New Zealand it may pay to trade Contracts for Difference (CFDs) through a different entity so you are not classified as a trader by the IRD which could potentially impact your investments. In the UK spread betting remains non taxable, but the penalty for a trader is a wider spread paid on each transaction.
CFD Taxation, The Final Word
While it is vital for you to know your taxable situation this is not the reason to trade CFDs. It is not a wise investment decision to lose $1 to save 30 cents.
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