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ASE To Open Official CFD Trading In November

by Carla Johnson, Investors, London

25 October 2007

The Australian Securities Exchange announced this week that trading in the ASX Contracts for Difference (CFD) market will begin on Monday, 5 November 2007.
The products available on the first day of trading will be 16 ASX equity CFDs.

On Monday, 12 November 2007, a further 10 ASX CFDs will be listed, covering major foreign exchange pairs, the S&P/ASX 200 index, the Dow Jones Industrial Average and gold. Additional equity, index and commodity CFDs will be launched in future weeks.

According to a recent survey by Brisbane’s Market Analyst Software, CFDs, which were launched in Australia five years ago, are now the second most popular trading product in Australia. The survey asked more than 1,000 traders about their trading patterns and found that CFDs were used by nearly one in two traders overall.

Until now, CFDs have been traded over the counter in Australia. Initial fears about the tax treatment of CFD trading have been allayed by a complex series of rulings and announcements from the Australian Tax Office.

There was a worry that they might be subject to the Goods and Services Tax, but that appears not to be the case. As regards income tax, the ATO issued Taxation Ruling (TR) 2005/15 outlining its views on the taxation treatment of contracts for difference.

In TR2005/15, the ATO states that a gain from a CFD could give rise to assessable income and a loss from a CFD could be an allowable deduction, if the CFD was entered into as an ordinary incident of carrying on a business, or if the CFD was entered into as part of a business operation or as a commercial transaction for the purposes of profit making.

Based on the ruling, which assumed that CFD were essentially short-term instruments, it appears that unrealized gains or losses would not be taken into account for tax, although legislation currently being discussed (TOFA) might require taxpayers to take into account their unrealized gains and losses at the end of a tax year.

Capital gains tax could also apply to CFD holdings; but income tax gains and losses would be offset against any CGT exposure, according to local tax advisers.

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