Relevant legislative provisions Income Tax Assessment Act 1997 Section 6-5. Income Tax Assessment Act 1997 Section 8-1. Income Tax Assessment Act 1997 Section 15-15 Income Tax Assessment Act 1997 Section 25-40 Income Tax Assessment Act 1997 Section 70-10 Income Tax Assessment Act 1997 Section 70-35 Income Tax Assessment Act 1997 Section 118-20
General tax treatment of CFDs
The Commissioner's view about the tax consequences of CFD trading is found in Taxation Ruling TR 2005/15. Where CFD trading is part of the carrying on of a business, the gains and losses from the CFD transactions will be accounted for under sections 6-5 and 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
Otherwise, gains and losses from CFD trading will be regarded as part of the carrying out of a profit making undertaking and accounted for under sections 15-15 and 25-40 of the ITAA 1997.
Either way, the gains and losses from CFD trading are accounted for on revenue account and treated as ordinary income.
The anti-overlap provisions in section 118-20 of the ITAA 1997 prevent gains and losses from CFD trading to be accounted for under the capital gains tax (CGT) provisions.
Accounting for open CFD positions at 30 June
Section 70-10 of the ITAA 1997 defines trading stock to include anything produced, manufactured or acquired which is held for the purposes of manufacture, sale or exchange in the ordinary course of business. When accounting for trading stock at the ending of an income year, section 70-35 of the ITAA 1997 states you include the value of your trading stock in working out your assessable income and deductions.
However, CFDs are not trading stock because they cannot be sold or exchanged in the ordinary course of business. A CFD is merely a form of cash-settled derivative that allow investors to take risks on movements in the price of a subject matter (the 'underlying') without ownership of the underlying. Therefore, the value of open CFD positions at the end of an income year cannot be included in working out your assessable income and deductions for an income year.
