Please seek professional tax advice for your own personal taxation matters. I am NOT a tax professional, and the information contained within this website is only for educational purposes only.
Here in Australia our financial year ends mid-year on 30 June. In preparation of my personal income tax return to the Australian Taxation Office I have to declare the amount of sales, purchases, expenses of my forex trading business activity.
What must you declare on your income tax return?
If you are an Australian resident you need to complete an annual income tax return. In this tax return you need to provide information of your forex sales, purchases, interest received, interest paid, and other expenses incurred in earning your forex income.
Some example of allowable deductions include:
- Forex trading software
- Subscriptions (eg. data, signal services, journals, etc)
- Depreciation of equipment used (eg. chairs, desks, monitors, computers, etc) – if they are above a certain value (currently $300). You can read more about the specific write-offs permitted directly from the ATO website here.
Are you conducting a forex trading business?
One aspect you need to consider that is important to the type of information you complete on your personal income tax return is whether, or not you were trading or investing in currencies.
The ATO has a helpful guide here, but in essence if you are trading with the aim to profit, trading often (as is most often the case with forex traders – especially those who use robots), and treating it like a business by maintaining records, and the amount of capital you use (although this isn’t a big factor in determining whether you are trading or investing).
As we continue throughout the remainder of this article I will assume you do satisfy the requirements of being classified as a forex trader.
Isn’t forex trading gambling and therefore tax free?
The ATO has published a Tax Ruling guide regarding this question as generally speaking gambling at a horse racing event, or casino would not be taxable on any money received from such ventures. However, even though forex trading is cash-settled, like a gambling bet, there is skill required on placing trades and business-like activity is occurring throughout the trading venture.
How do I calculate forex trading sales?
Forex trading sales are the total amount of currency you sold in Australian denominated dollars. It helps if your forex trading bank account is in Australian dollars as this will help with the ease of calculating your total sales. Otherwise you will have to convert your sales into Australia dollars using either the ATO’s average exchange rates at the end of every month.
Again, as the tax return requires amounts to be denominated in Aussie dollars I opt to have my accounts denominated in AUD to help ease the burden of calculating everything back to AUD at the end of the financial year. Thankfully with the help of MetaTrader I have been able to create a script that calculates the amount of sales and purchases as well as the opening stock and closing stock values all in AUD – regardless of whether the currency traded was non-AUD. This helps me to accurately calculate my profit/loss at the end of the financial year using AUD sales, purchases, opening stock and closing stock values.
There is one caveat to be mindful of when calculating your forex trading sales: only include sales when the position has been closed.
For example, if you’ve opened a short sale before the end of the financial year, say in the 2019 financial year, and then you close this trade in the next financial year (2020 financial year) this trade should not be included in the 2019 financial year tax return. It will be recorded in your 2020 financial year tax return.
How do I calculate forex trading purchases?
Forex trading purchases are the transactions where you buy to either open or close a trade. Similar to forex trading sales: you would only include forex trading purchases for positions that have been closed in the financial year.
Completing tax return
By using the data output from my MetaTrader script it helps to fill out section 15 – Income – Net Income or Loss from Business in my Tax Return for Individuals (obviously if you trade through an entity such as a company or trust you will need to fill out their tax returns in a similar area).
An example only:
|Tax Return Field||Answer|
|Description of main business or professional activity||Financial Asset Investing|
|Number of business activities||1 (obviously if this is the only activity you do then it would be 1, but if you have more than one business activity you’d fill this out according to the number of activities)|
|Business Name||Insert your full personal name here|
|Australian Business Number (ABN)||Insert an ABN if you have one|
|Address section||Fill in your address|
|Status of business||Ceased? Started? Neither? Did you start trading this financial year? Started; Have you stopped trading? Ceased; Are you still trading from previous years? Neither|
|Did you sell any goods or services using the internet?||No (if you’re selling items or are offering a service through the internet then tick “yes”)|
|Income received where no tax was withheld section||Not Applicable|
|Business Income section||Non-Primary Production Amount|
|(Description) Total Sales||$123,654|
|(Description) Total Swap Income||$12|
|(Description) Total Interest Rec’d||$2|
|Purchases & Other Costs||$123,456|
|Contractors & Commissions||$123 (brokerage amounts)|
|Depreciation expenses||$56 (fill out this section if you can claim depreciation on equipment and furniture)|
The total amount that goes into the Other Expenses Total field is the sum of the following amounts:
|Other Expenses Total||Non-Primary Production Amount|
|(Description) Swap charges||$12|
|(Description) Internet||$300 (proportion used for trading, cannot include personal)|
|(Description) Telephone||$100 (proportion used for trading, cannot include personal calls)|
|Other Expense Total||$412|
To calculate the Sales & Purchases values required in the tax return the following MetaTrader 4 script should help.
To use this script ensure you do the following:
- Go to the Account History tab in the Terminal view.
- Right-click anywhere there and select All History.
- Open up the eofy.mq4 script and edit the variables to match the start date of the financial year you want to calculate your results for (it’s the variables
- After compiling the script run it on any chart, and the figures will output in the Experts message area.
Here’s the eofy.mq4 script:
In this article you’ve discovered how to treat your forex trading income as assessable income, and how to treat your forex trading purchases as assessable deductions.
By using the free MetaTrader 4 script you should easily be able to calculate your forex trading sales and purchases to include these figures into your income tax return.
Remember also to include other legitimate tax deductions you’ve incurred throughout the year to help you derive you forex trading profits.