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Forex Taxation
Every trader’s main aim is to make successful trades in order to gain as much as possible. Over time though, as a trader gets more serious about trading, he will have to consider another side of the coin that is the tax responsibility he has. Forex taxation may seem to be somewhat strange for those who never went through it, and so we would like to outline some key areas and factors to take into account when it comes to forex taxation.
First off it is important to point out that different jurisdictions have a different take on forex trading, and as a result it is treated somewhat differently in one country in relation to another.
In the UK, for example, the HMRC determines one’s tax liability according to the trader classification. This depends on the type of forex trading activities one performs. For example:
- A trader who uses spread betting accounts is not required to pay any tax. However such traders are not eligible to any tax claims on losses.
- A self-employed trader, on the other hand, is liable to pay business tax, and is also eligible to submit claims for losses. Private investors are liable to pay capital gains tax.
- CFD trading is subject to capital gains tax in the UK. If annual profits are less than £50,000 they are taxed at 10%, and anything above is taxed at 20%. There is a tax allowance for the first £12,000.
- In the UK traders are classified quite broadly as full time or part time traders. The former, who trade for a living, have to pay income tax at the relevant rate, while part-timers are considered to be spread betters and hence they are not liable to pay tax.
In Canada, forex taxation regulations differ from those in the UK. The CRA classifies forex traders as either business owners or investors. The investors trade somewhat infrequently, and are liable to a capital gains tax of 50% of the marginal tax rate. The traders who are classified as business owners are taxed on all of their profits according to the current tax rate. Forex traders can also put claims on trading expenses. This could include deposit and withdrawal fees, the purchase of trading resources and equipment as well as internet fees.
In Australia, the ATO also classifies forex trading in two categories, namely, investing and trading. Investors are the ones who make a profit on a trade or an asset. They are liable to capital gains tax, with a 50% discount. Losses aren’t tax deductible. They can however be used to offset capital gains during the current year as well as in future years. The traders make money from short term speculations, which include trades held for less than a year. Naturally most forex traders seem to fall under this category their trading incomes is taxed at the particular rate.
First off it is important to point out that different jurisdictions have a different take on forex trading, and as a result it is treated somewhat differently in one country in relation to another.
In the UK, for example, the HMRC determines one’s tax liability according to the trader classification. This depends on the type of forex trading activities one performs. For example:
- A trader who uses spread betting accounts is not required to pay any tax. However such traders are not eligible to any tax claims on losses.
- A self-employed trader, on the other hand, is liable to pay business tax, and is also eligible to submit claims for losses. Private investors are liable to pay capital gains tax.
- CFD trading is subject to capital gains tax in the UK. If annual profits are less than £50,000 they are taxed at 10%, and anything above is taxed at 20%. There is a tax allowance for the first £12,000.
- In the UK traders are classified quite broadly as full time or part time traders. The former, who trade for a living, have to pay income tax at the relevant rate, while part-timers are considered to be spread betters and hence they are not liable to pay tax.
In Canada, forex taxation regulations differ from those in the UK. The CRA classifies forex traders as either business owners or investors. The investors trade somewhat infrequently, and are liable to a capital gains tax of 50% of the marginal tax rate. The traders who are classified as business owners are taxed on all of their profits according to the current tax rate. Forex traders can also put claims on trading expenses. This could include deposit and withdrawal fees, the purchase of trading resources and equipment as well as internet fees.
In Australia, the ATO also classifies forex trading in two categories, namely, investing and trading. Investors are the ones who make a profit on a trade or an asset. They are liable to capital gains tax, with a 50% discount. Losses aren’t tax deductible. They can however be used to offset capital gains during the current year as well as in future years. The traders make money from short term speculations, which include trades held for less than a year. Naturally most forex traders seem to fall under this category their trading incomes is taxed at the particular rate.