Edited version of your written advice

Authorisation Number: 1051262075426

Date of advice: 12 September 2017

Ruling

Subject: CGT and exemption’s

Question 1

Is the capital gain you make on the sale of Ethereum tokens disregarded as a personal use asset?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In 2013 you became aware of a cryptocurrency technology known as Bitcoin. You became very interested in the technology behind bitcoin, but didn’t purchase or invest in Bitcoin.

Later that year you read a proposal about a proposed Cryptocurrency. The proposal combined the block chain technology used with Bitcoin with programming language.

The proposal was of great interest to you. You commenced researching the Cryptocurrency, and started learning programming so you could use the Cryptocurrency if it was ever successful.

By 2014 a Crowdfunding exercise was launched to raise funds to develop Cryptocurrency further. You contributed Bitcoin to the value of less than AUD $10,000 to the Crowdfunding campaign. This would be exchanged at a later date, if and when the project successfully created the Cryptocurrency network, for that particular Cryptocurrency.

The Cryptocurrency network came into existence in 2015, at which point you received an amount of Cryptocurrency in respect of your Crowdfunding contribution.

Some time later the Cryptocurrency network underwent an upgrade resulting in a further amount of Cryptocurrency being allocated to you..

You have not traded either amount of Cryptocurrency.

The value of your Cryptocurrency tokens has risen markedly.

In the 18 financial year, you will sell both holdings of your Cryptocurrency. On the disposal of the Cryptocurrency you will make a substantial capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 108-20

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 section 116-20

Income Tax Assessment Act 1997 section 118-10

Income Tax Assessment Act 1997 section 118-20

Reasons for decision

Summary

The capital gain you make on the sale of your Cryptocurrency is not disregarded as the Cryptocurrency is not a personal use asset.

Detailed Reason

A personal use asset is a capital gains tax (CGT) asset that is used or kept mainly for the personal use or enjoyment. A capital gain you make from a personal use asset is disregarded if the first element of the asset's cost base is $10,000 or less.

Examples of personal use assets are clothing, furniture, cameras, boats, or sporting equipment.

In most cases, an intangible asset would not be considered to be a personal use asset. An exception to this would be where an intangible asset is used to acquire an asset held mainly for personal use and enjoyment. That is, the intangible asset will take on the character of its eventual use.

An example of an intangible asset would be an option.

CGT assets that are financial in nature are also not considered to be personal use assets. Examples of CGT financial assets would be cash, foreign currencies, and bank accounts. Bitcoin and other cryptocurrencies would also be considered to be CGT financial assets.

However, in the same way that an intangible asset will take on the character of its intended use, so will a financial asset. If you have acquired a financial asset for the specific purpose of acquiring a personal use asset, the financial asset would also be considered to be a personal use asset.

In Favaro v. FC of T (1996) 34 ATR 1; 96 ATC 4975, the Federal Court considered whether Italian currency which was held to be converted to Australian currency was a personal use asset.

The evidence of Mr Favaro was that he kept the Italian currency for the purpose of its being exchanged for Australian currency at a favourable rate. The Court concluded that the Italian currency was not used or kept primarily for personal use, and that the gain made by Mr Favaro on exchanging their Italian currency for Australian currency was an assessable capital gain.

In your case, you have acquired an amount of cryptocurrency. The first element of your cost base in acquiring the tokens was less than $10,000. Your cryptocurrency is both an intangible and a financial asset. If you were holding your Cryptocurrency to exchange for an asset that would be kept mainly for your personal use and enjoyment, your Cryptocurrency would also be a personal use asset where the first element of the cost base was less than $10,000, and any capital gain made on their disposal would be disregarded.

However, in your case your Cryptocurrency has been held as an investment. The purpose of holding the currency does not have a connection with acquiring a personal use asset. Accordingly, the capital gain made on the disposal of your cryptocurrency will be assessable as a capital gain, and cannot be disregarded as the cryptocurrency is not a personal use asset.

Conclusion

You acquired and held Cryptocurrency as an investment. You have not used the currency for personal use and you have held the currency until it has made a substantial gain. Therefore, the capital gain made on the disposal of the currency cannot be disregarded, and must be included in your income tax return as assessable income. As you have held the assets for more than 12 months you can use the discount method when calculating your capital gain.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).