How Dividends, Stock Splits...etc are accounted for in CFD Trading

Q.: What about Corporate Actions?

A: CFDs in general mirror corporate actions, but don't entitle you to franking credits or give you the voting rights normally associated with owning the underlying shareholdings. Thus holders of CFDs are still able to participate in corporate actions, including share splits, dividends and rights issues.

In the case of dividends, you will receive cash dividends, if you hold a long CFD position on the relevant ex-dividend date. If you hold a short position, you will need to make a cash payment equivalent to the value of the dividends. For CFDs, the dividend is credited the day the share goes ex-dividend - this is in contrast to a physical shareholder who may be required to wait for up to a month or more before receiving the dividend.

Other corporate actions such as bonus issues, buybacks, takeovers and share splitting are also automatically reflected on your CFD trading account as soon as they are implemented.

Q.: What happens if a company pays a dividend?

A: The holder of a long CFD will receive, on the ex-dividend date, a payment that equates to the net dividend on the underlying share. The dividend payment is usually reflected on your trading account on the day of its announcement. But note that a short CFD holder will, on the ex-dividend date, be charged the gross dividend by way of a debit to their account.

Q.: Are CFDs exempt from tax on dividends?

A: No, this is incorrect - returns from dividends on CFDs are subject to tax. CFDs are exempt from stamp duty because they do not involve the trader purchasing shares. But CFDs are not treated as bets, so any profits from them will be liable to capital gains tax, unless they are held in a tax-efficient pension like a Sipp (in the UK).

Q.: Does a holder of a long CFD receive a dividend and imputation credits?

A: Ok, in a nutshell -:

Dividend - Yes.
Imputation Credits - No for most CFD providers.
ASX CFDs - Yes

Q.: Does a holder of a short CFD make a cash payment to the value of the dividend and imputation credits?

A: Yes.

Q.: What happens in a stock split?

When a stock has a split the price usually lowers proportionately to reflect the increase in numbers of shares, is the CFD adjusted in the same way or does it blindly follow the new price?

A: The CFD is adjusted according to the split, so a 2:1 split in the underlying share will reflect in a 2:1 split in the CFD position.