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Edited version of your written advice
Authorisation Number: 7910123934223
Date of advice: 11 July 2017
Ruling
Subject: Cryptocurrency
Question 1
Are you in the business of trading cryptocurrencies?
Answer
No
Question 2
Is the receipt of CryptoA assessable income?
Answer
No
Question 3
Are the profits or losses on the disposal of cryptocurrencies, returned on capital account?
Yes
Relevant facts and circumstances
You have purchased a number of Cryptocurrency tokens in 20XX.
During the period of ownership of one of these a chain split occurred and you subsequently acquired CryptoA.
Within the period of 12 months you disposed of some of the Cryptocurrency.
There has been no trading activity since.
You intend to hold your cryptocurrency investments for at least 12 months probably for several years.
You believe that blockchain technology will significantly develop in the future allowing transactions in cryptocurrency.
You do not have a system, plan or strategy for your investment decisions, nor do you employ any analytical tools or algorithms.
You are employed.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 104-10(1)
Income Tax Assessment Act 1997 section 104-155(1)
Income Tax Assessment Act 1997 section 108-5(1)(b)
Income Tax Assessment Act 1997 section 108-20(1)
Income Tax Assessment Act 1997 section 108-20(2)(a)
Income Tax Assessment Act 1997 section 110-25
Income Tax Assessment Act 1997 section 116-20(1)
Income Tax Assessment Act 1997 section 118-10
Income Tax Assessment Act 1997 section 118-10(3)
Income Tax Assessment Act 1997 section 118-20
Income Tax Assessment Act 1997 section 118-20
Tax Administration Act 1953
Reasons for decision
Question 1
The Commissioner’s view on carrying on a business is found in Taxation Ruling TR 97/11 (TR 97/11). The indicators in TR 97/11 have been developed by the courts of law and are used for all cases about the carrying on of a business. Whether or not a person is carrying on a business is a question of fact and degree and is determined on a year to year basis. Taxation Ruling TR 97/11 provides that the following factors are relevant considerations in determining whether a business exists:
a) the nature of the activities and whether they had the purpose of profit-making,
b) the complexity and magnitude of the undertaking,
c) an intention to engage in trade regularly, routinely or systematically,
d) operating in a business-like manner and the degree of sophistication involved,
e) whether any profit/loss was regarded as arising from a discernible pattern of trading,
f) the volume of the taxpayer's operations and the amount of capital employed by him.
The following factors are particularly relevant in respect of cryptocurrency traders:
● repetition and regularity in the buying and selling of cryptocurrency,
● turnover,
● whether the taxpayer was operating to a plan, setting budgets and targets, keeping records,
● maintenance of an office,
● accounting for the cryptocurrency transactions on a gross receipts basis, and,
● whether the taxpayer was engaged in another full-time profession.
In your case, your trades are not regular or repetitive. You acquired your cryptocurrency, and disposed part of your investment within the year.
Although you have a large value of cryptocurrency invested at present, the disposals represent a small percentage of your overall investments. You keep records of your transactions for tax purposes but you do not have a system, plan or strategy, other than holding, for your investment decisions.
You are employed.
The overall impression gained from the facts provided is that you were not carrying on a business of crypto currency trading.
Nor has your activity the characteristics of a profit making scheme or undertaking.
Rather the activity is that of an investor who has acquired assets to take advantage of future growth.
Therefore the activity is an investment.
Question 2
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.
In your case, you received your CryptoA as part of a chain split. When the chain split, there was no assessable income or capital proceeds at that time. However, when you sold your CryptoA, the amount received is the capital proceeds from the CGT event A1 happening to the CryptoA. The capital gain consists of the difference between the sale price capital proceeds (less any transaction fee) and the cost base of the CryptoA.
Question 3
You can make a capital gain or loss as a result of capital gains tax (CGT) event happening to a CGT asset you own.
You make a capital gain if your capital proceeds for the disposal of a CGT asset are greater than the cost base of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the disposal of that asset.
Capital gains tax is not a separate tax, net capital gains forms part of your assessable income and is taxed at your marginal tax rate.
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? explains that Bitcoin is a CGT asset and why.
Guidance on www.ato.gov.au Tax Treatment of cryptocurrencies in Australia – specifically bitcoin confirms that the tax treatment of bitcoin can be applied to other crypto or digital currencies that have the similar characteristics as bitcoin.
The disposal of cryptocurrency will give rise to a CGT event A1 under subsection 104-10(1) of ITAA1997. A disposal includes when a cryptocurrency is traded or exchanged in return for another cryptocurrency.
In your case you will need to declare any Capital Gains or Losses from the disposal of your cryptocurrency in your income tax return.
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