Edited version of private advice

Authorisation Number: 1052452380351

Date of advice: 27 October 2025

Ruling

Subject: Cryptocurrency

Question 1

Will the transfer of the cryptocurrency by the Taxpayer to the segregated wallet under the loan agreement constitute a disposal of a CGT asset under CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No

Question 2

Will the transfer of the cryptocurrency constitute either, the creation of a trust for the purposes of CGT event E1 under section 104-55 of the ITAA 1997, or the transfer of a CGT asset to an existing trust for the purposes of CGT event E2 under section 104-60 of the ITAA 1997?

Answer 2

No

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

The taxpayer is an individual who is an Australian resident for tax purposes.

The taxpayer purchased cryptocurrency in the XXXX year.

On XX in XXXX, the taxpayer entered into a personal loan agreement with Company A. As part of the loan agreement, the taxpayer deposit their cryptocurrency into a specific wallet held by a third-party custodian engaged by Company A.

Under the loan agreement, the taxpayer borrowed XXXX against the cryptocurrency reflecting a XX loan-to-value ratio (LVR). The funds borrowed were received into the taxpayer's bank account.

The loan is repaid over four separate quarterly payments with the funds only being able to be used for the stated purpose of the loan.

The private keys of the wallet the taxpayer deposited their cryptocurrency into are held by Company A and/or the third-party custodian engaged by Company A.

The taxpayer does not have a private key to the wallet.

The wallet in which the cryptocurrency was deposited into is segregated and uniquely associated with the taxpayer.

The cryptocurrency within the wallet will not be transferred, redeployed or otherwise dealt with by Company A until the conclusion of the loan.

At all relevant times prior to its return to the taxpayer, the cryptocurrency remains subject to a perfected charge under the Personal Property Securities Act 2009 (PPSA charge) and Company A has not exercised its dealing rights.

There will be a temporary period after repayment of the loan by the taxpayer where Company A has control of the cryptocurrency for a short time while the taxpayer determines how they wish for Company A to deal with the asset.

A copy of the loan agreement between the taxpayer and Company A was provided.

Under the agreement, Company A's control of the cryptocurrency is strictly limited to the purposes of maintaining and, if necessary, enforcing its security interest, and is explicit in the loan agreement. The agreement affirms that Company A has no operational discretion to use or redeploy the asset during the term of the loan.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 section 104-60

Income Tax Assessment Act 1997 section 106-60

Income Tax Assessment Act 1997 section 108-5

Reasons for decision

Question 1

Will the transfer of the cryptocurrency by the taxpayer to the segregated wallet under the loan agreement constitute a disposal of a CGT asset under CGT event A1 in section 104-10 of the ITAA 1997?

Answer:

No.

Detailed reasoning

Subsection 104-10(1) of the ITAA 1997 provides that a CGT event A1 happens if you dispose of a CGT asset.

Subsection 104-10(2) of the ITAA 1997 states:

'You dispose of a * CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.'

Cryptocurrency is a CGT asset for the purposes of subsection 108-5(1) of the ITAA 1997 - see also 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?

On XX 20XX, the taxpayer acquired the cryptocurrency.

On XX 20XX, the taxpayer transferred the cryptocurrency to a private wallet managed by a third-party custodian engaged by Company A. The private keys are not held by the taxpayer but by Company A and/or the third-party custodian.

The taxpayer entered into a personal loan agreement with Company A.

Under the loan agreement, the taxpayer borrowed XXXX against the cryptocurrency which reflects a XX LVR.

The cryptocurrency is not pooled with other crypto or is otherwise used and will be returned upon repayment of the loan.

The holder of the private cryptographic key associated with a blockchain address is recognised as the legal owner of the corresponding crypto asset.

In the present case, the taxpayer initially holds the cryptocurrency in their private wallet, controlled by their own private key which they use to access the account. When they transfer their cryptocurrency to Company As private wallet this would normally result in CGT event A1 happening as it results in the transfer of ownership of the cryptocurrency to the custodian.

However, there is an exception in section 106-60 of the ITAA 1997 which is relevant to consider in these circumstances.

Application of section 106-60 of the ITAA 1997

Under section 106-60 of the ITAA 1997, the vesting of a CGT asset in an entity is ignored if the vesting is for the purpose of enforcing, giving effect to, or maintaining a security, charge or encumbrance over the asset and the security, charge or encumbrance remains over the asset just after the vesting.

Assuming all of the requisite conditions of paragraph 106-60(1)(a) of the ITAA 1997 are satisfied, then the vesting of the cryptocurrency in the third-party custodian is disregarded for CGT purposes. That is, section 106-60 operates to treat the legal and beneficial ownership of the cryptocurrency as unchanged.

The provisions of the [security] agreement relating to the security are clear that the cryptocurrency vests in custodian for the purposes of "enforcing, giving effect to or maintaining a security. Accordingly, where the taxpayer transfers the cryptocurrency to the segregated wallet, section 106-60 will apply to ignore the vesting of the asset in the custodian which means that CGT event A1 will not be considered to have happened.

In the ruling application, the taxpayer also queried whether paragraph 106-60(1)(b) of the ITAA 1997 will operate to treat the cryptocurrency as vesting in Company A the moment the loan is repaid.

The Commissioner observes that the third-party custodian engaged by Company A retains legal ownership of the cryptocurrency until it is returned to the taxpayer and the custodian no longer possesses the private key. Consequently, as a matter of general law, the cryptocurrency remains vested in the custodian for a period after the final loan repayment. However, this does not mean that paragraph 106-60(1)(b) of the ITAA 1997 operates to treat the cryptocurrency as vested in the custodian in a manner that causes CGT event A1 to happen.

The security does not automatically cease upon repayment of the loan. Rather, the security ceases when the cryptocurrency is no longer held under the terms of the agreement. Except in rare instances where the return of the asset is electronically automated to coincide precisely with the repayment of the loan, it is typical for a custodian holding a crypto asset as security to retain control, and therefore legal ownership, for a short period following repayment. The term 'security' in subsection 106-60(1) of the ITAA 1997 should not be construed as ceasing immediately upon performance of the secured obligation. Instead, it ceases when the asset is no longer held pursuant to the security agreement.

The agreement implicitly authorises the custodian to retain the cryptocurrency for a reasonable period following repayment of the loan, while Company A or the custodian fulfil their obligations under the agreement. During this interim period, the security remains over the cryptocurrency.

This is supported by the Explanatory Memorandum to the Tax Laws Amendment (2013 Measures No. 1) Bill 2013, which introduced section 106-60 of the ITAA 1997. The Explanatory Memorandum refers to the return of intangible security assets "on completion of the security agreement," reinforcing the view that the cessation of the security is linked to the conclusion of the agreement rather than the mere repayment of the secured obligation.

In any case, a PPSA charge remains over the asset until the cryptocurrency is returned, so its vesting in the custodian continues to be disregarded under paragraph 106-60(1)(ii), regardless of whether the 'security' continues.

For there to be a 'disposal' under subsection 104-10(2), another entity must become the owner of the CGT asset. Since this change in ownership is to be ignored under section 106-60, no 'disposal' occurs, and therefore CGT event A1 does not happen.

Question 2

Will the transfer of the cryptocurrency constitute either, the creation of a trust for the purposes of CGT event E1 under section 104-55 of the ITAA 1997, or the transfer of a CGT asset to an existing trust for the purposes of CGT event E2 under section 104-60 of the ITAA 1997?

Answer:

No.

Detailed reasoning

Subsection 104-55(1) provides that a CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement.

Subsection 104-60(1) provide that CGT event E2 happens if you transfer a CGT asset to an existing trust.

It is not necessary to determine whether this arrangement gives rise to a trust in equity. Even if a trust did exist, section 106-60 would require us to adopt a factual assumption that is inconsistent with the existence of such a trust.

As already considered, section 106-60 of the ITAA 1997 disregards the vesting of legal title of the crypto asset in the third-party custodian. This means that, even if the taxpayer retains beneficial title to the cryptocurrency at equity, there is no separation of legal and beneficial title for CGT purposes. The custodian's legal ownership is to be ignored. Accordingly, the transfer of the cryptocurrency will not result in either CGT event E1 under section 104-55 of the ITAA 1997 or CGT event E2 under section 104-60 of the ITAA 1997 happening.