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1 Is the income derived from your CFD trading activities assessable as business income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 No. Question 2 If the answer to question 1 is no, are the gains or losses from your CFD trading activities for income years ended 30 June 20XX and 30 June 20XX accessible under section 15-15 of the ITAA 1997 or deductible under sections 25-40 of the ITAA 1997? Answer 2 Yes. This ruling applies for the following periods: Year ended 30 June 20XX Year ended 30 June 20XX The scheme commenced on: DD MM 20XX

You commenced trading in contracts for difference (CFD) on DD MM 20XX. You decided to trade CFD's due to their flexibility, ability to trade both rising and falling markets and the leverage. You use a trading platform for your CFD trades. Your CFD trades consists of the following markets: •                Information provided. You provided the following information for the income years ended 30 June 20XX and 30 June 20XX for your CFD's: Table 1: Profit and losses for years 20XX - 20XX Income Year Investment Amount Loss Number of Trades 20XX-XX $X -$X X,XXX 20XX-XX $X -$X X,XXX Total $X -$X X,XXX Your losses in the income years ended 30 June 20XX and 30 June 20XX were primarily due to the heightened market volatility, adverse price movements and the impact of leverage during period where the markets moved sharply. You provided a copy of your CFD trades for the income years ended 30 June 20XX and 30 June 20XX, which showed monthly trades as follows: •                Information supplied. Your net losses from the 20XX-XX to 20XX-XX income years are as follows: •                Information supplied.

You do not have details of your profit/loss for the income year ended 30 June 20XX as your trading platform introduced new trade analytics software during this period. Your records of your trades are kept on your trading platform which you can download and export into a CSV file. You hold your CFD's short term. You place stop loss on trades to limit your loss if the market moves unexpectedly. You limit the size of each trade to assist in controlling your risk level. You use the following public available information for your CFD research: •                Information supplied. You have not obtained any professional or expert advice for CFD trading. You spent XX hours per week on your CFD trading activities as follows: •                Trading execution, monitoring and management - xx hours. •                Research, analysis and preparation - xx hours. •                Your trading activities are conducted X to X spending x hours per day. Your trading activities are conducted late at night and early in the morning due to the time difference between Australia and US and Europe. You do not use a broker. You are employed on a full-time basis as a xx xx xx. Bot software

You developed a bot using script. You commenced using the bot in MM 20XX. It took you X months to develop the bot. You spend X hours per week maintaining the bot. The bot is not used by your friends and family. The bot is not used for your CFD trades, it is a decision support tool only used to identify conditions and price levels. All of your trading decisions are made manually by you, not by your bot.

Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 15-15 Income Tax Assessment Act 1997 section 25-40 Income Tax Assessment 1997 subsection 995-1(1)

Question 1 Is the income derived from your CFD trading activities assessable as business income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? Summary You were not carrying on a business of trading CFD in the year ended 30 June 20XX and 30 June 20XX. Therefore, the gains or losses from your CFD trading activities in the year ended 30 June 20XX and 30 June 20XX are not considered as profits or losses made from carrying on a business. Detailed reasoning Carrying on a business of CFD trading Subsection 995-1(1) of the ITAA 1997 defines 'business' as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Whether or not a person is carrying on a business is a question of fact and degree and is determined on a year-to-year basis. If a taxpayer's activities do not amount to the carrying on of a business in one income year that will not prevent them doing so in a later income year. Similarly, when the extent of an activity falls below what is required for that activity to be commercially viable the activity may no longer constitute the carrying on of a business.

Taxation Ruling TR 97/11 income tax: am I carrying on a business of primary production? (TR 97/11) lists the following indicators as relevant in determining if a business is being carried on: •                Whether the activity has a significant commercial purpose of character •                Whether there is more than just an intention to engage in business •                Whether there is a purpose of profit as well as a prospect of profit from the activity •                Whether there is repetition and regularity of the activity •                Whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business. •                Whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit. •                The size, scale and permanency of the activity. •                Whether the activity is better described as a hobby, a form of recreation or a sporting activity. These factors are considered in combination, no one factor is decisive. Whether a business is being carried on depends on the large or general impression gained.

The question of whether you were engaged in share trading is essentially based on the facts of your situation. This matter has been addressed in a number of court cases. In Case 6297 (1990) 21 ATR 3747 ( Case X86 ), 90 ATC 621 ( Case 6297 ), the following specific indicators of carrying on a business for someone carrying on a share market activity were listed as: •                the nature of the activities and whether they have the purpose of profit-making •                the complexity and magnitude of the undertaking •                an intention to engage in trade regularly, routinely, or systematically •                operating in a business-like manner and the degree of sophistication involved •                whether any profit or loss is regarded as arising from a discernible pattern of trading •                the volume of the taxpayer's operation and the amount of capital employed by them. More particularly the case looked at specific indicators in respect of share traders: •                repetition and regularity in the buying and selling of shares •                turnover

•                whether the taxpayer is operating to a plan, setting budgets and targets, keeping records •                maintenance of an office •                accounting for the share transactions on a gross receipt's basis •                whether the taxpayer is engaged in another full-time occupation In a more recent case Hartley v FCT (2013) AATA 601 (Hartley case) the AAT affirmed a decision of the Commissioner that a taxpayer was a share investor and was not carrying on a business of share trading and denied deductions that had been claimed on the premise that a business existed for the relevant years. In the Hartley

case the taxpayer was during relevant times a full-time council employee. According to the taxpayer, he had been actively involved in the share market for many years, which occupied about 15 hours of his time per week. He also claimed he had an arrangement with his employer where he could trade during business hours and then make up any time after hours. For the relevant tax years, the taxpayer lodged tax returns claiming significant deductions on the basis that he was carrying on a business of share trading. After an audit, the Commissioner determined that the taxpayer was a share investor and issued assessments refusing the deductions. The AAT considered each of the relevant factors established in case law (in particular, the factors listed in Case 6297

) in determining whether or not the taxpayer was engaged in a business of share trading. Although noting the 'matter was finely balanced', the AAT was of the view that the factors pointing against the existence of a share trading business were more significant than those pointing in favour of the existence of a share trading business. The factors in favour of the Commissioner's position identified by the AAT included the following: •                The buying and selling of shares were not regular or routine. •                There appeared to have been very little in the way of a plan, although a written plan was produced belatedly; the AAT added that very little appeared to have been done in terms of setting budgets and targets, and that the trading and the background research was simple and unsophisticated. In the case of share trading repetition and regularity are considered to be important indicators on whether or not a business is being carried on, with the size and scale of the activity being supporting factors. Whether the activity has a significant commercial purpose of character

This indicator requires that you be able to show that the activity is carried on for commercial reasons and in a commercially viable manner. You need to be able to show that the interaction between the size and scale of the activity, the repetition and regularity and the intention and prospect of profit are sufficient to conclude that the activity has a significant commercial purpose. Whether the taxpayer has more than just an intention to engage in business The intention of the taxpayer in engaging in the activity is a relevant indicator in determining whether a business is being carried on. The Full Federal Court in Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 stated that: The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. You have other employment in which you are engaged on a full-time basis. Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

This indicator is directed at determining whether the taxpayer entered into the activity with an intention to make a significant commercial or financial gain from it. In Hope v The Council of the City of Bathurst (1980) 144 CLR 1; 80 ATC 4386; (1980) 12 ATR 231 , Mason J states that business activities are usually activities that are 'engaged in for the purpose of profit on a continuous and repetitive basis'. The intentions of the taxpayer are ascertained from looking objectively at their actions, including any arrangement entered into. All of the income expected to be received from, and all of the costs associated with, the activity are taken into account to determine what profit, if any, is expected. It is important to show how the activity can make a profit. However, stronger evidence of an intention to make a profit occurs when the taxpayer has conducted research into their proposed activity, consulted experts or received advice on the running of the activity and the profitability of it before setting up the business. This was the situation in FC of T v. JR Walker 85 ATC 4179; (1985) 16 ATR 331.

Your intention is to derive income from these trading activities. You have been trading in CFD's since the income year ended 30 June 20XX and you have not made a profit in any of the income years. You use publicly available information to assist you with your CFD trades, and you have not undertaken any professional courses for CFD's. Whether there is regularity and repetition of the activity including the size, scale and permanency of the activity You spend x hours each evening (XX to XX) researching and trading. In the income year ended DD MM 20XX, you executed X trades and in the income year ended 30 June 20XX you executed X trades, with you making losses in X income years. While the trades demonstrate some scale to your activities, the number of trades you conduct on a month-to-month basis varies significantly. Conclusion After weighing up the objective facts and applying the indicators are set out in TR 97/11 to your circumstances, the Commissioner does not consider you were carrying on a business in the income years end 30 June 20XX and 30 June 20XX, for the following reasons:

•                You do not have adequate processes in place to preserve your capital and limit your losses. This is evident by no profit being made in any income year since you commenced the activity, with you incurring losses of $X from the income year ended 30 June 20XX to 30 June 20XX. A person conducting a business would have had processes in place to preserve their capital and limit their losses. •                You have a full-time job which is your primary source of income. This limits the amount of time that you can spend on your CFD activities. •                The number of trades that you completed is not of a consistent level. The levels increase significantly during some months. •                You have completed no formal training in respect to CFD trading, and you rely solely on publicly available information. As you are not carrying on a business the income would not be assessable as business income under section 6-5 of the ITAA 1997. Question 2

If the answer to question 1 is no, are the gains or losses from your CFD trading activities for the income years ended 30 June 20XX and 30 June 20XX accessible under section 15-15 of the ITAA 1997 or deductible under sections 25-40 of the ITAA 1997? Summary The losses generated from CFD activities will be deductible under section 25-40 of the ITAA 1997. Detailed reasoning Taxation Ruling 2005/15 Income tax: tax consequences of financial contracts for differences (TR 2005/15) outlines the tax consequences of entering into a financial contract for differences (CFD). Paragraphs 11-15 of TR 2005/15 provide the following guidance on the tax implications of gains and losses from CFDs: 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. Application to your circumstances Your CFD activities were undertaken with a view to making a profit and therefore your gains from trading CFDs are assessable under section 15-15 of the ITAA 1997 and your losses are deductible under section 25-40 of the ITAA 1997 in the year in the years ended 30 June 20XX and 30 June 20XX.