CFD Trading Tax- Gains, Losses and Taxes

Some say CFDs are highly speculative form of gambling and therefore not subject to tax. Others say they are similar to financial derivative product and are treated like any other investment so tax does apply but for most people CFDs are treated using capital gains provisions. See sample of what to give to your accountant here

Few Facts will help us understand better how CFDs calculate gains and taxes.

  • CFD is a contract and a contract is an asset for tax purposes.
  • Losses should be treated as capital losses and offset against any other capital gains
  • A loss incurred in CFDs is what would be available for offset against other gains in the tax share example gains on share disposals.
  • Just work out your profit and losses for the year under annual exempt amount. If you have excess losses for the year you can forward to deduct against any future chargeable gains. Thus the income for tax purposes is the net income calculated by summing up all your gains and taking away all your losses.
  • Realisation occurs when CFD is closed or otherwise expires.
  • Note that expenses such as financial charges and internet access may be deductible thereby reducing your taxable income.
  • Also should you treat your profits from trading shares as income and treat your contracts for different trading as a business loss an offset against other orderly income.
  • Tax treatment can be a grey area especially if you live in Australia. The Australian tax office believes CFDs are contracts of speculation and you are basically gambling and the underline share will either increase or decrease in value. If this is the case any capital gain or capital loss you make from a financial CFD will be disregarded under the CGT gambling exemption provision. Also in Australia there are no franking credits in relation to CFDs and the 12 month capital gain discount also does not apply.
  • Returns from dividends in UK are quoted net on basic rate tax.
  • CFDs are exempt from stamp duty because they do not involve the trade approaching shares. But generally CFDs are not treated as bets in UK so any profit from them will be liable to capital gains tax. Unless they are held in tax sufficient provision. That is why when a share goes ex dividend you will be usually credited only around 90% of the dividend income.
  • Always get in touch with a financial advisor in relation to such matter to help you to minimise your exposure to high taxes.

Question left to answer: Whether income from dividend adjustments is taxed as income tax or taxed under CGT and if this income is treated as Capital Gains any negative cash flow from a short position at ex date be offset against gains?

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