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  • Transacting with cryptocurrency

    A CGT event occurs when you dispose of your cryptocurrency. A disposal can occur when you:

    • sell or gift cryptocurrency
    • trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
    • convert cryptocurrency to fiat currency like Australian dollars, or
    • use cryptocurrency to obtain goods or services.

    If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed. Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded.

    If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

    While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.

    See also:

    Exchanging a cryptocurrency for another cryptocurrency

    If you dispose of one cryptocurrency to acquire another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. Because you receive property instead money in return for your cryptocurrency, the market value of the cryptocurrency you receive needs to be accounted for in Australian dollars.

    If the cryptocurrency you received cannot be valued, the capital proceeds from the disposal are worked out by using the market value of the cryptocurrency you disposed of at the time of the transaction.

    See also:

    Example

    On 5 July 2017, Katrina acquired 100 Coin A for $15,000. On 15 November 2017, through a reputable digital currency exchange, Katrina exchanged 20 of Coin A for 100 of Coin B.

    Using the exchange rates on the reputable digital currency exchange at the time of the transaction, the market value of 100 Coin B was $6,000. For the purposes of working out Katrina's capital gain for her disposal of Coin A, Katrina's capital proceeds are $6,000.

    End of example

    Cryptocurrency as an investment

    If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency.

    You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.

    If you hold the cryptocurrency as an investment, you will not be entitled to the personal use asset exemption. However, if you hold your cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount to reduce a capital gain you make when you dispose of it.

    If you have a net capital loss you can use it to reduce a capital gain you make in a later year. You cannot deduct a net capital loss from your other income.

    You are required to keep records of each cryptocurrency transaction in order to work out whether you have a made a capital gain or loss from each CGT event.

    Example

    Terry has been a long term investor in shares and has a range of holdings in various public companies in a balanced portfolio of high and low risk investments. Some of his holdings are income producing and some not, and he adjusts his portfolio frequently at the advice of his adviser.

    Recently, Terry's adviser told him that he should invest in cryptocurrency. On that advice Terry purchased a number of different cryptocurrencies which he has added to his portfolio. Terry doesn't know much about cryptocurrency but, as with all of his investments, he adjusts his portfolio from time to time in accordance with appropriate investment weightings.

    If Terry sells some of his cryptocurrency the proceeds would be subject to CGT because he has acquired and held his cryptocurrency as an investment.

    End of example

    See also:

    Personal use asset

    Cryptocurrency is only capable of being acquired, held and transacted with. Both the period of holding and the nature of the subsequent transaction will be relevant to whether your cryptocurrency is a personal use asset.

    The relevant time for determining whether or not an asset is a personal use asset is at the time of its disposal.

    During a period of ownership, the way that cryptocurrency is kept or used may change (for example, cryptocurrency may originally be acquired for personal use and enjoyment, but ultimately be kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business). The longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset.

    Cryptocurrency is not a personal use asset if it is acquired, kept or used:

    • as an investment
    • in a profit-making scheme, or
    • in the course of carrying on a business.

    If you have to exchange a cryptocurrency you own to Australian dollars (or to a different cryptocurrency) to purchase or acquire the items for personal use or consumption, then this strongly indicates the cryptocurrency you own was acquired, held and used for a purpose other than personal use or enjoyment.

    Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.

    Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption. Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded.

    Example

    Michael wants to attend a concert. The concert provider offers discounted ticket prices for payments made in cryptocurrency. Michael pays $270 to acquire cryptocurrency and uses the cryptocurrency to pay for the tickets on the same day. Having regard to the circumstances in which Michael acquired and used the cryptocurrency, the cryptocurrency is a personal use asset.

    End of example
     

    Example

    Peter has been regularly keeping cryptocurrency for over six months with the intention of selling at a favourable exchange rate. He has decided to buy some goods and services directly with some of his cryptocurrency. Because Peter used the cryptocurrency as an investment, the cryptocurrency is not a personal use asset.

    End of example

    See also:

    Loss or theft of cryptocurrency

    You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen.

    In this context the issue is likely to be whether the cryptocurrency is lost, whether you have lost evidence of your ownership, or whether you have lost access to the cryptocurrency.

    Generally where an item can be replaced it is not lost. A lost private key cannot be replaced. Therefore, to claim a capital loss you will need to be able to provide the following kinds of evidence:

    • when you acquired and lost the private key
    • the wallet address that the private key relates to
    • the cost you incurred to acquire the lost or stolen cryptocurrency
    • the amount of cryptocurrency in the wallet at the time of loss of private key
    • that the wallet was controlled by you (for example, transactions linked to your identity)
    • that you are in possession of the hardware which stores the wallet
    • transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.

    See also:

    Chain splits

    Cryptocurrency held as an investment

    If you hold cryptocurrency as an investment, and receive a new cryptocurrency as a result of a chain split (such as Bitcoin Cash being received by Bitcoin holders), you do not derive ordinary income or make a capital gain at that time as a result of receiving the new cryptocurrency.

    If you hold the new cryptocurrency as an investment, you will make a capital gain when you dispose of it. For the purposes of working out your capital gain, the cost base of a new cryptocurrency received as a result of a chain split is zero. If you hold the new cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount.

    Example

    Alex held 10 Bitcoin on 1 August 2017 as an investment, when Bitcoin Cash split from Bitcoin. Immediately after the chain split, Alex held 10 Bitcoin and 10 Bitcoin Cash. Alex does not derive ordinary income or make a capital gain as a result of the receipt.

    On 25 May 2018, Alex sold the 10 Bitcoin Cash for $4,000. Because the cost base of the Bitcoin Cash was zero, Alex makes a total capital gain of $4,000 in the 2017-18 income year from the sale of the Bitcoin Cash.

    End of example

    Cryptocurrency held in a business you carry on

    A new cryptocurrency you receive as a result of a chain split in relation to cryptocurrency held in a business that you carry on will be treated as trading stock where it is held for sale or exchange in the ordinary course of the business, and must be brought to account at the end of the income year.

      Last modified: 08 Nov 2018QC 42159