Additional Information
TR 2005/15 Income tax: tax consequences of financial contracts for differences
Regulation 13.15A Charges in relation to certain derivatives contracts
Support Query
How do I record a contract for difference (CFD) in Simple Fund 360?
Overview
This article will look at how Contracts for Difference (CFDs) can be recorded in Simple Fund 360.
CFDs: Capital or Revenue?
The ATO holds the view that CFDs are to normally be recorded as revenue. In some cases, it may be recorded on capital account. Please see paragraph 40 of TR 2005/15 for when this applies.
This article will treat the CFD amounts as revenue.
This means that net gains arising from CFDs are to be treated as:
- ordinary income under section 6-5 ITAA97
and it follows that any net losses incurred would be an:
- allowable deduction under section 25-40 ITAA97
Recording in Simple Fund 360
An account will be created for the CFD trading account in the chart of accounts.
Net gains and losses will be posted to the appropriate accounts created for each CFD.
GST
For funds registered for GST, note that CFDs are input taxed financial supplies and that input tax credits will not be available to offset GST amounts payable.
Note
BGL do not provide accounting or taxation advice. The following is designed to act as a guide for Simple Fund 360 users. It is not designed to be accounting or tax advice and should not be taken as a strict guideline. Other methods that are more suitable may be used instead of these steps.
Overview
The following steps will be completed to record a CFD in Simple Fund 360:
- Create the CFD Investment Account
- Create the Net Gain and Net Loss Control accounts
- Create the individual CFD Net Gain and Net Loss Sub accounts
After completing the steps above, the following accounts will be created, including sub accounts for each investment under 72300:
Create the CFD Investment Account
Navigate to the Chart of Accounts
| From the Main Toolbar, go to Accounting. |
|
| Select Chart of accounts from the list. |
|
Click Add Account then select Investment
Click Select Securities then click Create New
Enter the following details:
| Security Code | SaxoCFD |
| Security Name | Saxo CFD Trading Account |
| Market Type | Miscellaneous |
Click Save
Search for the newly created security and select it
Set the Investment Type as Derivatives (Options, Hybrids, Future Contracts)
Click More Details
Ensure the Investment type is Unitised and that the Asset subject to CGT box is unticked
Click Save
Create control accounts
Navigate to the Chart of Accounts
| From the Main Toolbar, go to Accounting. |
|
| Select Chart of accounts from the list. |
|
Click Add Account then select Other
Record the appropriate details when creating the account:
| Account Class | Control |
| Code | 20010 (Or any other available income code) |
| Name | CFD Net Gain |
| Tax Label | Income - Other Income (Or other applicable label) |
| GST Rate | Not Applicable |
Click Save
Click Add Account then select Other
Record the following details:
| Account Class | Control |
| Code | 30010 (Or any other available expense code) |
| Name | CFD Net Loss |
| Tax Label | Expenses - Other amounts (Fully deductible) (Or any other appropriate label) |
| GST Rate | Not Applicable |
Click Save
Create sub accounts
Navigate to the Chart of Accounts.
| From the Main Toolbar, go to Accounting. |
|
| Select Chart of accounts from the list. |
|
Click Add Account and select Other
Record the appropriate details when creating the account:
| Account Class | Sub Account |
| Code | 20010 |
| Sub Account Code | BHP.CFD |
| Name | BHP CFD Net Gain |
Click Save
Click Add Account and select Other
Record the appropriate details when creating the account:
| Account Class | Sub Account |
| Code | 30010 |
| Sub Account Code | BHP.CFD |
| Name | BHP CFD Net Loss |
Click Save
Recording a deposit
Example
The fund has deposited $10,000 from its bank account to to its CFD trading account to start trading.
The fund takes a long position on BHP Shares and purchases 50,000 CFDs.
To record the deposit, the following journal will be recorded:
| Account | Code | Units | Debit ($) | Credit ($) |
|---|---|---|---|---|
| Saxo CFD Trading Account | 72300/SaxoCFD | 1 | 10,000 | |
| Bank | 60400/Bank Code | 10,000 |
Recording a Margin Call
A CFD provider will make a margin call when you have a CFD trade open which has lost money, and there is not enough cash in your CFD trading account to cover this loss.
If you get a margin call, you will usually have to pay in extra money that same day to avoid the trade being liquidated.
As a fund may not use its assets to pay margins1, a margin call is typically covered with cash.
For this example, the fund was required to transfer $8,000 from its bank account to cover the margin call.
The following journal records this:
| Account | Code | Units | Debit ($) | Credit ($) |
|---|---|---|---|---|
| Saxo CFD Trading Account | 72300/SaxoCFD | 0 | 8,000 | |
| Bank | 60400/Bank Code | 8,000 |
Trading Gain
After closing out the contract on 50,000 long BHP CFDs, the fund makes a net gain of $5,240.
The following journal records this:
| Account | Code | Units | Debit ($) | Credit ($) |
|---|---|---|---|---|
| Saxo CFD Trading Account | 72300/SaxoCFD | 0 | 5,240 | |
| BHP CFD Net Gain | 20010/BHP.CFD | 5,240 |
Trading Loss
Due to the leveraged nature of CFD trading, there exists the possibility that a loss exceeds the amount held in the trading account.
If the fund had incurred a loss of $30,000 in trading, the following journal would record this:
| Account | Code | Units | Debit ($) | Credit ($) |
|---|---|---|---|---|
| BHP CFD Net Loss | 30010/BHP.CFD | 30,000 | ||
| Saxo CFD Trading Account | 72300/SaxoCFD | 0 | 10,000 | |
| Bank | 60400/Bank Code | 20,000 |
Revalue the investment
At year end, the trading account will need to be revalued to ensure it is recorded at market value
Please refer to the following link for instructions on doing this:
Manually Revaluing Security Prices