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Edited version of private advice
Authorisation Number: 1052013920611
Date of advice: 29 July 2022
Subject: Cryptocurrency - profit making intention
Are you entitled to a deduction under section 25-40 of the Income Tax Assessment Act 1997 (ITAA 1997) for the loss incurred from your cryptocurrency trading for the period in 20XX?
Are you entitled to a deduction under section 8-1 of the ITAA 1997 for the loss incurred from your cryptocurrency trading for the period in 20XX?
This private ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You have full-time employment.
You started buying and selling different cryptocurrencies in order to make a profit in the short term.
You incurred a loss from short term trading for the relevant period.
You have provided a copy of a trading report which shows that you made XXX buy and sell transactions.
Your intention was to make a profit.
Your trading pattern was capitalising the high price and low price of coins within a day or within a week (short term cryptocurrency trading strategy).
You do not intent to hold the cryptocurrencies for the long term to make capital gains in the future.
You had one room in your house set up exclusively for cryptocurrency trading.
You still hold cryptocurrencies, and you changed your strategy from actively trading to less frequent trading.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 15-15
Income Tax Assessment Act 1997 Section 25-40
Reasons for decision
Section 25-40 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can deduct a loss arising from the carrying on or carrying out of a profit-making undertaking or plan if any profit from that plan would have been included in your assessable income by section 15-15.
Section 15-15 of the ITAA 1997 includes profit arising from the carrying on or carrying out of a profit-making undertaking or plan. However, this provision does not apply to a profit that is assessable as ordinary income under section 6-5 of the ITAA 1997, or which arises in respect of the sale of property acquired on or after 20 September 1985.
Taxation Determination TD 2014/26 Income tax: is bitcoin a 'CGT asset' for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997? provides that bitcoin holding rights amount to property within the meaning of paragraph 108-5(1)(a). As such, a person holding a bitcoin is considered to hold a 'CGT asset' for the purposes of that provision (Paragraph 12).
As such, section 25-40 of the ITAA 1997 does not apply in your case, as the loss was incurred in respect of the sale of property acquired on or after 20 September 1985.
Taxation Ruling TR 92/4 Income tax: whether losses on isolated transactions are deductable considers whether losses on isolated transactions are deductible under section 8-1 of the ITAA 1997. According to Paragraph 1 of TR 92/4, the term 'isolated transactions' refers to:
- those transactions outside the ordinary course of business of a taxpayer carrying on a business, and
- those transactions entered into by non-business taxpayers.
Paragraph 4 of TR 92/4 states that a loss from an isolated transaction is generally deductible under section 8-1 if:
a) in entering into the transaction the taxpayer intended or expected to derive a profit which would have been assessable income; and
b) the transaction was entered into, and the loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.
Paragraph 22 of the Taxation Determination TD 2014/26 states that whether a gain on the disposal of bitcoin that are not personal use assets is included in a taxpayer's assessable income as a capital gain or as ordinary income will depend on all the facts and circumstances of the case. In the case of an isolated transaction that is not carried out as part of a business operation, the Commissioner considers that a gain will generally be ordinary income where the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and the transaction was entered into in carrying out a commercial transaction.
In your case, it is considered that your intention in entering into the transactions was to make a profit or gain and the transactions were entered into, and the losses was made, in the course of carrying out commercial transactions, so the loss is deductible under section 8-1 of the ITAA 1997.