CFD Trading Strategy


Tax On Contracts For Difference Or 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.

CFD Profit is Treated as Income

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

As with any business, whether you are a company or not, business expenses associated with CFD trading, such as platform charges, interest charges and internet access, may be deductible, reducing your taxable income.

Capital Gains Tax Does Not Apply to CFDs

While it would be highly unusual for a CFD trader to hold a position for 12 months or more, capital gains tax discounts do not apply to Contracts for Difference (CFDs). Franking credits do not apply to dividends received while holding CFDs and no tax benefit is available for franking credits.

CFD Tax Outside of 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.

The Last Word On Tax on CFDs

As with any investment it is important to know your tax obligations, though these are not the first priority. Remember losing $1 to save 30 cents is a stupid investment decision.



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