Forex Taxation Process

The goal of any forex trader is to make successful trades, taxes are an important and inseparable part of the trading process. However, it is important for any professional trader who intends to be profitable in the long run to consider what his tax liability or responsibility will be. The fact is to trade forex and make a potential profit.

Australian Trading Taxation Process

The ATO (Australian Taxation Office) in Australia also classifies forex trading into two types of investing activities: investing and trading.

Investors are those that make a profit on an asset or trade made more than 12 months ago. Investors are liable to capital gains tax, with a 50% discount. Losses are not tax-deductible, but they can be used to offset capital gains made in the current or future financial years.

Traders, on the other hand, make money out of short-term speculative activity, which is basically holding assets or trades for less than 12 months. Practically, all retail forex traders will fall under this category, and their trading income will be taxed at their personal tax rates. Trading income is profits minus losses and other associated trading expenses. The ability to make tax deductibles allows traders to maintain maximum capital to continue their forex trading activity.

Bitcoin Tax Implications: As Bitcoin gains popularity as an investment and medium of exchange, tax authorities are working on guidelines for reporting gains or losses from Bitcoin transactions. In Australia many jurisdictions, Bitcoin is treated as property for tax purposes, and individuals must report capital gains or losses, The Australian Taxation Office (ATO) treats Bitcoin and other cryptocurrencies as property, not as currency. As such, capital gains tax (CGT) may apply to profits made from trading or selling Bitcoin. Australian traders and investors are advised to keep accurate records of their transactions for tax reporting purposes.

UK Trading Taxation Process

It is worth noting that different jurisdictions treat forex trading differently, and this eventually determines the tax responsibility of their respective citizens. In the UK, for instance, the HMRC will determine your tax liability depending on your trader classification or the type of forex trading activities you perform. Forex traders who use spread betting accounts are not required to pay any kind of tax. This may sound appealing, but such traders are also not eligible for any tax claims on their losses.

The other classification is a self-employed trader, who will be liable to pay business tax. Self-employed traders are eligible for claims on their losses. Some traders (especially big accounts) are classified as private investors- and they are liable to pay capital gains tax.

CFD trading in the UK is subject to capital gains tax: with annual profits below £50,000 taxed at a 10% rate and those above £50,000 taxed at a rate of 20%. Nonetheless, there is a tax allowance for the first £12,000 in trading income. This makes the UK CFD tax one of the most favourable in the world.

There is also the broader classification of full-time and part-time forex traders. Full-time traders (those who trade for a living) are liable to paying income tax at their relevant rate, whereas part-time traders are considered spread betters who do not incur any tax liability.

Canadian Trading Taxation Process

 In Canada, the CRA classifies forex traders as either investors or business owners.

  • Investors

Investors are highly capitalized individuals who trade infrequently, or rather, have a long-term view on their investments. Investors are liable to a capital gains tax of 50% of their marginal tax rate.

  • Forex Traders

Most forex traders, however, fall under the business owner category. As such, profits and losses are considered as business income, not capital. In this way, 100% of profits are taxed at your current tax rate. And like other businesses, 100% of losses qualify for a tax deduction. In addition to losses, forex traders can also put claims on trading expenses, such as deposit/withdrawal fees, purchase of educational or related trading resources, internet fees, and the purchase of trading equipment.

Final Word

Understanding your tax responsibility is very important if you plan to engage in forex trading. Furthermore, keeping track of your FX taxes can also help you to account for your forex trading activity

Important note: Traders should keep detailed records to ensure accurate tax reporting and consult a tax professional for specific obligations.