cfd taxation ruling (draft), page-8

  1. 873 Posts.
    Hi rembrandt,

    My reading of the "Ruling" section (the full text is at end) is that essentially there is a choice of two paths:

    You can either:

    (1) Treat the CFD gains/losses as assessable income under s6-5 if you are running a "business" of trading CFD's.... in which case section 118-20 of the ITAA 1997 kicks in which says "to the extent that a gain on a financial contract for differences as a result of a CGT event is assessable under section 6-5 or section 15-15 of the ITAA 1997, a capital gain arising from the event is reduced" ....
    .... and comensaurately for deductions ....s 110-55(4) of the ITAA 1997, "to the extent that a loss on a financial contract for differences is deductible under section 8-1 or section 25-40 of the ITAA 1997, the reduced cost base of the asset is reduced thereby reducing the amount of capital loss."

    OR

    (2) if not running a "business", you treat the gains/losses as a CGT event as you indicated under the CGT provisions s118 etc

    Of course, all CGT net gains are included
    in the taxpayer's assessable income at the end anyway, but the two different paths (CGT, or income from business) can cause major differences in how much assessable income you actually end up with ....

    I'm not a tax lawyer, but I did do the subject at uni, that said it was quite a while ago, and from memory I barely passed, lol

    Could be wrong will look again tommorrow

    ------------
    Ruling
    -----------
    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.

    12. A loss from a financial contract for differences will be 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 or in a business operation or commercial transaction for the purpose of profit making.

    13. A gain from a financial contract for differences will be assessable income under section 15-15 of the ITAA 1997 where a taxpayer enters into a financial contract for differences in carrying on or carrying out a profit-making undertaking or scheme, and the gain from it is not assessable under section 6-5 of the ITAA 1997.

    14. A loss from a financial contract for differences where the gain would have been assessable under section 15-15 of the ITAA 1997 is an allowable deduction pursuant to section 25-40 of the ITAA 1997.

    15. A financial contract for differences is a CGT asset under section 108-5 of the ITAA 1997.

    16. On the maturity or close out of a financial contract for differences, CGT event C2 happens (section 104-25 of the ITAA 1997).

    17. The CGT gambling exemption in paragraph 118-37(1)(c) of the ITAA 1997 does not apply to disregard capital gains or capital losses arising from financial contracts for differences.

    18. Pursuant to section 118-20 of the ITAA 1997, to the extent that a gain on a financial contract for differences as a result of a CGT event is assessable under section 6-5 or section 15-15 of the ITAA 1997, a capital gain arising from the event is reduced.

    19. Pursuant to subsection 110-55(4) of the ITAA 1997, to the extent that a loss on a financial contract for differences is deductible under section 8-1 or section 25-40 of the ITAA 1997, the reduced cost base of the asset is reduced thereby reducing the amount of capital loss.


    cheers
 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.