Forex trading tax australia

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Here are the instructions how to enable JavaScript in your web browser. Retail investors have enjoyed the benefit of developments in areas as varied as web-based trading platforms, online customer service, liquidity, spreads and fees. These innovations have allowed retail investors an unprecedented level of access to equity markets.

Fortunately, this growth has coincided with the emergence of a variety of services that focus on the tax outcomes of investing in equities. Similar developments are occurring in another area — one of the fastest growing in the market — retail foreign exchange trading.

As the retail FX market develops, perhaps more complex exposures to FX — beyond the relatively simple spot prices available at present — are likely through devices such as futures, options, swaps, contracts for difference and even exchange traded funds. As with equities, an investor can use leverage with a retail FX account and gain increased exposure. Given the volatility, the outcomes are by no means certain.

Investors can, almost literally within the blink of an eye, make sizable gains and losses. What may not be as quick is the challenge of working out what your taxable profits and losses are, or how much tax if any you may be liable to pay. This will depend on your overall tax position, taking into account things such as your other assets and the reasons why you bought them. When it comes to retail FX, we are dealing with some of the more complicated provisions of tax law.

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Tax outcomes are the result of applying relevant law to particular factual circumstances. These include those of the investor and the trades conducted. If we consider the above, there is an obvious market need for some canny provider to develop a tax reporting platform to help investors comply with the tax rules. However, given the complexity of tax law and the variety of possible factual circumstances to consider, it may be extremely difficult to automate a tax reporting service for retail FX.

First, the tax rules governing FX are complex. Secondly, the way that these FX rules interact with other tax rules, like capital gains tax, is definitely not straightforward.

Looking at the broader context, professional fund managers are increasingly being asked to consider after-tax investment returns. In relation to a traditional portfolio of equities and bonds, this is largely concerned with mitigating the loss of franking credits under the day rule and the capital gains discount concession. If retail FX becomes for investors an alternative to equities and bonds, or is used to hedge currency fluctuations on global investments, then sensible tax management will require an awareness of two important variables.

These are known as timing mismatches and character mismatches. Timing mismatches are important because the time of recognition of assessable income and allowable deductions affects the tax payable for a given income year. The capital losses are quarantined for offset only against capital gains. Are you transacting on revenue or capital account? Are you a trader or an investor? If you invest using a trust or through a self-managed superannuation fund, the tax rules, and potential timing and character mismatches, can be different.

So you need to be aware of your broader tax scenario and how retail FX will interact with it. At different times the investor may be in front with potential unrealised gains, or may fall behind with potential unrealised losses. You may need to consider even more in holding this position — for example, the extent that your leverage will accommodate the volatility before your position is closed out. You might decide that it is time to quit while ahead or to mitigate the loss.

These events will trigger tax outcomes that may be planned or unplanned.

Worse still, you could believe you had correctly ascertained the tax outcome, only to have the Australian Taxation Office audit you and disagree with the tax positions you have taken. The Australian Financial Review. Fairfax Media Please upgrade your browser.

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