Edited version of your written advice

Authorisation Number: 1012713712448

Ruling

Subject: Income tax ~ Capital gains tax ~ CGT assets ~ Collectibles and private use assets

Question

Does the acquisition, partial disposal and ongoing retention of your Bitcoin holdings qualify as a personal use asset from which CGT is exempt?

Answer

Yes

This ruling applies for the following period

Financial year ended 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

You acquired a quantity of Bitcoin worth less than $10,000.

You purchased the quantity of Bitcoin in a few years ago.

You did not acquire the quantity of Bitcoin as part of a business venture.

You did not acquire the quantity of Bitcoin as a course of earning your regular income which is from employment.

Your expressed intention when you acquired the quantity of Bitcoin was to support Bitcoin as a model of alternative finance in the wake of the GFC. You further express that no positive gain was ever intended in so much that you acquisition was made for consumption and not investment.

You indicated at the time you acquired Bitcoin that it was not an effective currency for making purchases of goods or services and that its dominant use was for making online donations.

You state that your support of Bitcoin as a movement is not an isolated example. You are a supporter of crowdsourcing fundraisers through a website. You support independent artists and video game productions.

Prior to the realisation of your capital gain, you had made a number of Bitcoin donations in web forums where Bitcoin was accepted.

During the financial year ended 30 June 20XX, you disposed of a quantity of your Bitcoin holdings which was greater than your cost base.

The remaining balance of your Bitcoin holdings has been used to make online donations.

Relevant legislative provisions

Section 104-10 of the Income Tax Assessment Act 1997

Section 108-5 of the Income Tax Assessment Act 1997

Section 108-20 of the Income Tax Assessment Act 1997

Section 110-25 of the Income Tax Assessment Act 1997

Section 118-10 of the Income Tax Assessment Act 1997

Reasons for decision

The disposal of Bitcoin to a third party gives rise to CGT event A1 under subsection 104-10(1) of the ITAA 1997. A taxpayer will make a capital gain from CGT event A1 if the capital proceeds from the disposal of the Bitcoin are more than the Bitcoin's cost base. The capital proceeds from the disposal of the Bitcoin 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 the taxpayer in respect of the disposal. The money paid or the market value of any other property the taxpayer gave in respect of acquiring the Bitcoin will be included in the cost base of the Bitcoin in accordance with subsection 110-25(2) of the ITAA 1997.

Under subsection 118-10(3) of the ITAA 1997, a capital gain made from a personal use asset (a CGT asset used or kept mainly for personal use or enjoyment) is disregarded if the first element of the cost base is $10,000 or less. In addition, any capital loss made from a personal use asset is disregarded under subsection 108-20(1) of the ITAA 1997.

Bitcoin that is kept or used mainly to make purchases of items for personal use or consumption ordinarily will be kept or used mainly for personal use.

Paragraph 108-20(2)(a) of the ITAA 1997 states that a personal use asset is

'a CGT asset (except a collectable) that is used or kept mainly for your (or your associate's) personal use or enjoyment'.

In Favaro v. FC of T (1996) 34 ATR 1; 96 ATC 4975 Branson J held that Italian currency which was converted to Australian currency was not a 'personal use asset' as defined in subsection 160B(1) of the Income Tax Assessment Act 1936 . In making this decision Branson J accepted the Commissioner's argument

'that the expression "personal use" is used in s 160B of the ITAA 1936 in contradistinction to use for business or profit making purposes'.

The word 'contradistinction' means distinction by contrast or opposition ( The Australian Oxford Dictionary , 1999, Oxford University Press, Melbourne). Therefore, an asset that is not used for business or profit making purposes is, by default, used or kept mainly for personal use and enjoyment. The two categories are mutually exclusive.

The Bitcoin was 'used' for making donations. At the time of purchase you intended to use the Bitcoin to make donations to causes which allowed for it. You have demonstrated prior to the capital gain that the Bitcoin was held for personal use and not business or profit, and you have since continued to use your Bitcoin thereafter to make donations. Therefore, as your capital gain from the disposal of your Bitcoin was in the pursuit of a hobby, it does not need to be included in your assessable income.