Understanding tax – A quick guide for OANDA traders in Singapore.

Trading CFDs in Singapore with OANDA?

Understanding the tax implications of trading is crucial. While OANDA Asia Pacific Pte Ltd (OAP) is a Capital Markets Services Licence holder regulated by the Monetary Authority of Singapore (MAS), your tax obligations remain with you, the trader. The information below is for general guidance and is not tax advice.

This blog has been co-authored by OANDA and Grant Thornton Singapore.

In Singapore, the Inland Revenue Authority of Singapore (IRAS) generally considers gains from the sale of financial instruments, including forex and shares, as capital gains, which are typically not taxable for individual investors. This is because they are generally viewed as personal investments, meaning that your profits are likely to be tax-exempt.

However, there's a critical exception: if IRAS deems your activities to have a profit-seeking motive or deemed to constitute a "trade or business" rather than a personal investment, then your profits would be subject to income tax.

Also read: Singapore strengthens trading safety. Are your funds safe? Why choose OANDA

OANDA offers Contracts for Difference (CFDs) on various underlying asset classes such as forex and indices. With CFDs, you don't own the underlying asset. For tax purposes, the same "investor vs. trader" distinction applies to profits from CFD trading. If your CFD trading is deemed a "trade or business," the profits would be taxable income.

Also read: What is leveraged FX trading – the main attractions and key risks

As there is no definition of trade in the Income Tax Act 1947, IRAS uses several factors, often called "badges of trade", to determine if an activity is a "trade or business". While not an exhaustive list, key factors include:

• Frequency of transactions: Do you trade frequently, engaging in numerous transactions? The higher the frequency of your transactions, the more likely that you are trading.
• Holding period: Do you hold your positions for short periods, aiming for quick profits? The shorter your holding period, the more likely that you are trading.
• Motive: Is your primary intention to profit from frequent buying and selling, rather than long-term investment?
• Organisation/System: Do you approach trading systematically and organised, akin to a business?
• Financial means: Are your financial resources and activities more indicative of a business venture than a casual investment?

“A lot of individuals who buy and sell shares naturally assume that they do not have to pay tax in Singapore because capital gains are not subject to tax in Singapore. Whilst it is true that capital gains are not taxed in Singapore, whether a gain arising from the sale of shares is capital in nature (and thus not taxed) or income (and thus taxed) is more complicated. Therefore, it is important for individuals to understand the rules around determining whether a gain is capital or income so that they can be aware of these when deciding on how to manage their assets and investments.”

Adrian Sham, Partner – Employer Solutions & Private Clients, Grant Thornton

The MAS, Singapore's central bank and financial regulatory authority, is crucial in regulating financial institutions like OAP. While OAP is regulated by the MAS for business conduct requirements to protect retail investors’ interests and maintain market integrity, MAS's mandate does not extend to individual tax assessment. Your tax obligations fall under the purview of IRAS

• Non-taxable gains: If your trading gains are considered non-taxable capital gains, you do not need to declare them in your Income Tax Return.
• Taxable gains: If your trading activities are deemed a "trade or business" and your gains are taxable, you must declare these profits under "Other Income" in your annual Income Tax Return to IRAS.

• Keep meticulous records: Maintain detailed records of all your trades, including trade confirmations, statements, and other relevant documentation. This is crucial for determining your tax position and any potential IRAS inquiries. This should be retained for at least 5 years from the relevant Year of Assessment.
• Seek professional tax advice: Tax laws can be complex, and the distinction between investment and trading can be nuanced. Given your specific trading patterns and financial situation, consulting a qualified tax professional in Singapore is highly recommended. They can provide tailored advice and ensure you comply with all local tax regulations.
• IRAS assessment approach: It is essential to understand that IRAS evaluates each case individually, relying on the totality of the facts and circumstances. No fixed threshold or single rule definitively classifies gains from the sale of financial instruments as capital or income. The determination is based on thoroughly examining the nature of the trading activities. This means that what might be considered capital for one individual could be deemed income for another, depending on the specifics of their trading behaviour.