ATO Interpretative Decision
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Yes, the gains from financial spread betting are assessable income under section or section of the ITAA The taxpayer is a client of a company which provides the services of financial spread betting for which it holds an Australian Financial Services Licence issued by the Australian Securities and Investment Commission ASIC under the Corporations Act At the time the transactions were entered into, the taxpayer was a full-time salaried employee of a company which is not connected with the financial services industry.
The taxpayer's duties binary options trading tax australia government an employee with the company do not involve financial analysis, observing financial markets or the provision of financial advice.
The taxpayer entered into these transactions because they believed that they would enjoy participating in some 'sophisticated, exciting and challenging on-line fun' but understood that they could lose. However, having regard to the taxpayers spread betting activities, a win or loss would not be material in their financial circumstances. The binary options trading tax australia government did not carry out any formal research and did not use any system or trading techniques but made decisions based on what they knew of financial affairs generally.
The taxpayer made a net gain from the spread betting activities in that financial year. The taxpayer contends that the profits made were mainly the result of guesswork. Section of the ITAA provides that the assessable income of a taxpayer includes income according to ordinary concepts.
A gain from a financial spread betting activity is assessable income under section of the ITAA where the transaction is entered into as an ordinary incident of carrying on a business.
It is a question of fact as to whether a taxpayer's activities amount to the carrying on of a business. These indicators are equally relevant when determining whether a taxpayer is carrying on a business generally.
The relevant indicators, which emerge from the case law in this area, to consider are: It is accepted that activities conducted on a small scale and for a short time may nevertheless involve the carrying on of a business. The taxpayer entered into a number of spread betting transactions over a one week period. The proceeds generated from these spread betting activities could be seen as the commencement of a business having regard to the following: Even if the activities do not constitute the carrying on of a business of spread betting, the gains made on each binary options trading tax australia government contract may still be assessable as ordinary income under section of the ITAA if the profits were obtained in a business operation or commercial transaction entered into with the intention or purpose of making a profit see Federal Commissioner of Taxation v.
The profit-making purpose and commercial nature of these transactions is borne out by the fact that: These circumstances objectively establish that such contracts are entered into for a commercial purpose and the existence of a profit making intention.
Objectively, they are not consistent with a person who is merely in pursuit of a recreational gambling activity. If section of the ITAA does not apply, the gains are nevertheless assessable income under section of the ITAA as the spread betting contracts amount to carrying on or carrying out a profit-making undertaking or plan.
This is the case even if there are only isolated transactions entered into by the taxpayer binary options trading tax australia government 'the profit arising from an isolated commercial or business transaction binary options trading tax australia government constitute income if the taxpayer's purpose or intention in entering into the transaction was to make a profit' See Antlers Pty Ltd in liq v.
What is important is the intention or purpose, determined by a consideration of the objective facts. Spread betting contracts are the purchase of financial risk -something with a significant commercial flavour - by means of a contract productive only of a gain or loss. It is an activity undertaken for the purposes of making a profit. Binary options trading tax australia government betting can be distinguished from gaming and wagering that might take place on a race course or at a binary options trading tax australia government because, unlike those activities, it is not governed by the various State Gaming and Wagering statutes but by Commonwealth legislation dealing with the conduct of commercial activities.
The validity of spread betting contracts - being found in the Corporations Actas opposed to gaming legislation - indicates Parliament's intention that they, as a branch of human activity, belong to an order entirely different from gaming or gambling, that is, they are true commercial activities. Transacting with financial spread betting is essentially a commercial activity of investing in a cash-settled derivative, albeit in the legal form of a contract of gaming and wagering, in relation to an underlying financial risk.
The degree of control is also another factor that distinguishes financial spread betting from recreational gambling. The winnings tend to be the rewards for skill and judgement rather than purely betting on chance See Brajkovich v.
Any losses on the spread betting contracts would be deductible under section of the ITAA where, had a gain been made on the contract, it would have been assessable under of the ITAA Similarly, any losses on the spread betting contracts are deductible under sections of the ITAA where, had a gain been made on the relevant contract, it would have been assessable under section of the ITAA Keywords Financial derivatives Gambling income.
This document has changed over time. This is an edited binary options trading tax australia government summarised record of a Tax Office decision.
This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision. If you reasonably apply this decision in good faith to your own circumstances which are not materially different from those described in the decisionand the decision is later found to binary options trading tax australia government incorrect you will not be liable to pay any penalty or interest.
However, you will be required to pay any underpaid tax or repay any over-claimed credit, grant or benefitprovided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.