Trading derivatives such as Contracts-For-Difference (CFD) are a popular way to increase your financial exposure without tying up large amounts of capital. Other popular instruments for increasing financial leverage include Options, Futures, Binary Options and other similar financial products.
As a trader, you may not have considered that the product you are trading is actually a complex financial instrument. These products are commonly seen on Forex and broker platforms that allow users to trade with leverage. If you are new to trading derivatives, it is a good idea to first familiarise yourself with the tax treatment, as you may be surprised how it differs from other investments such as shares and property.
In most cases, CFDs are treated on revenue account rather than capital.
This means your trading profits will be taxed as ordinary income and not subject to capital gains tax. Any losses you incur are generally deductible and in some cases can be used to offset against your other sources of income such as employment.
We know that taxation can be complicated, especially when trading derivatives. We work with traders who want a better understanding on the tax treatment of their CFD trading and are looking to maximise the deductions available to them.
In the retail marketplace we see CFDs being used on a number of popular platforms that you may already be familiar with.
We are also seeing their use on a number of digital currency platforms to provide leverage to traders. One popular example being BitMEX.
Self-Managed Super Funds (SMSF)
It is also possible for an SMSF to acquire CFDs, provided the Trust Deed of the SMSF allows for such investments. The CFD investments must also be allowed for under the Investment Strategy of the SMSF. In the Investment Strategy, the CFD investments must be fully considered to ensure they align with the goals and objectives of the SMSF and its members. A derivatives risk statement may also be required for some investments.
Our SMSF team can help you ensure that your CFD investments are done correctly without putting the tax status of your fund at risk. Find out more about our SMSF service
If you are regularly trading Forex and CFDs, it pays to plan ahead. Our accounting and tax team is knowledgeable on the needs of CFD traders and has extensive experience with the major CFD trading services. The taxation system can be difficult to navigate without a skilled tax accountant to help you out. Our team does exactly that; we have the experience and the skills you need to legally reduce your tax liability. Through our tax advisory and planning services, we can help you create the best tax strategy for your situation.