Edited version of private advice

Authorisation Number: 1051820739965

Date of advice: 23 April 2021

Ruling

Subject: CGT and cryptocurrency

Question 1

Has a capital gains tax event (CGT) occurred when Bitcoin (BTC) was transferred by the Trustee of the Self-Managed Superannuation Fund on DD/MM/YY to Mr XXX in his personal capacity?

Answer

Yes

Question 2

Has a CGT event occurred when BTC was disposed of and Enjin (ENJ) was subsequently acquired on DD/MM/YY by Mr XXX?

Answer

Yes

Question 3

Has a CGT event occurred when Mr XXX disposed of ENJ in the year ended DD/MM/YY?

Answer

Yes

Question 4

Has a CGT event when Mr XXX transferred the 0x (ZRX) to the Fund in the year ended DD/MM/YY?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Mr XXX is a Trustee of the BTSF. (Fund)

In December YY, Mr XXX was aged XX years and X months of age.

In late YY. the Fund began investing in cryptocurrency though Independent Reserve.

On DD/MM/YY, 0.XXX Bitcoin (BTC) was transferred from the Fund's Independent Reserve account to Mr XXX's personal Binance account.

The value of the 0.XXX BTC was $X.XXX

On DD/MM/YY, XX,XXX Enjin (ENJ) was purchased by Mr XXX from his personal Binance account.

The value of XX,XXXX ENJ was $X.XXX

On DD/MM/YY, $X,XXX was withdrawn from the Fund and this amount was used to acquire XXX 0x (ZRX).

The ZRX was purchased by Mr XXX in his personal Binance account.

On DD/MM/YY, XXXX.XXX ZRX was transferred from Mr XXX's personal Binance account to the Fund's Independent Reserve Account.

The value of the XXX ZRX was $XXXX

On DD/MM/YY, 0.XXXXXX BTC was transferred from Mr XXX's personal Binance account to the Funds Independent Reserve account.

The value of the 0.XXXX BTC was $XXXX

On DD/MM/YY you provided an SMSF regulatory contravention disclosure to the ATO.

DD/MM/YY you received a letter from the ATO regarding the SMSF regulatory contravention disclosure advising no further action was to be taken in relation to this matter.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-15

Income Tax Assessment Act 1997 subsection 15-15(2)

Income Tax Assessment Act 1997 section 102-20

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 116-20

Income Tax Assessment Act 1997 subsection 118-10(3)

Reasons for Decision

Detailed reasoning

CGT asset

Section 102-20 of the ITAA 1997 provides that you can make a capital gain or loss if and only if a CGT event occurs. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset to someone else, for example, if you sell a property.

A CGT asset is defined in section 108-5 of the ITAA 1997 as any kind of property, or a legal or equitable right that is not property

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?examines whether bitcoin is a CGT asset. Paragraphs 6 and 7 state that:

6. In Yanner v. Eaton (Yanner) the High Court accepted that property refers not to a thing but to a description of a legal relationship with a thing; and, more specifically, to the degree of power that is recognised in law as permissibly exercised over the thing. Noting the difficulties in determining what is meant by 'property' in a thing, their honours quoted Professor Gray who stated '[a]n extensive frame of reference is created by the notion that 'property' consists primarily in control over access'

7. There is no single test nor a single determinative factor for identifying a proprietary right. Courts have emphasised different characteristics in different circumstances. One formulation that has been applied in Australia is the 'Ainsworth test' - which asks whether a right is definable, identifiable and capable of assumption by third parties, and permanent or stable to some degree. However, courts have also focused on factors such as excludability (whether it is possible to exclude others from the right in question), commercial value (whether something is treated in commerce as a valuable proprietary right), and enforceability of the right against third parties generally.

TD 2014/6 concluded that bitcoin holding rights amount to property within the meaning of paragraph 108-5(1)(a) of the ITAA 1997. As such, a person holding a bitcoin is considered to hold a 'CGT asset' for the purposes of that provision.

In these circumstances, BTC, ENJ and ZRX (collectively known as bitcoins) are CGT assets.

Capital proceeds

Subsection 104-10(1) of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset and according to subsection 104-10(2) of the ITAA 1997, 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.

A capital gain is made from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base (subsection 104-10(4) of the ITAA 1997). A capital loss is made if the capital proceeds are less than the asset's reduced cost base.

According to subsection 116-20(1) of the ITAA 1997 the capital proceeds from a CGT event are the total of the money received, or are entitled to receive in respect of the event happening; and the market value of any other property received, or are entitled to receive, in respect of the CGT event happening (worked out as at the time of the event).

However, section 118-20 reduces any capital gain made by a taxpayer by an amount that is included in the taxpayer's assessable income under another provision of the tax law, for example, ordinary income under section 6-5.

Application to your circumstances

In these circumstances, the transfer or disposal of the bitcoins gives rise to CGT event A1 under subsection 104-10(1) of the ITAA 1997. You will make a capital gain from CGT event A1 if the capital proceeds from the transfer or disposal of the bitcoins are more than the bitcoins' cost base. The capital proceeds from the transfer or disposal of the bitcoins are, in accordance with subsection 116-20(1) of the ITAA 1997, the money or the market value of any other property received (or entitled to be received) by you in respect of the disposal.

Specifically, CGT event A1 occurred when change of ownerships occurred in each of the following transactions:

1.    The trustee of the Fund transferred BTC to Mr XXX on DD/MM/YY.

2.    Mr XXX disposed of BTC to purchase ENJ on DD/MM/YY.

3.    Mr XXX disposed of ENJ in the year ended DD/MM/YY.

4.    Mr XXX transferred ZRX to the Fund in the year ended DD/MM/YY

In each of the above transactions, the transferor or seller will make a capital gain or loss if the capital proceeds from the transfer or disposal of the bitcoins are more or less than the cost base of the bitcoins.

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