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
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
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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