Edited version of your written advice

Authorisation Number: 1051497886035

Date of advice: 9 April 2019

Ruling

Subject: Cryptocurrency

Question 1

Are the proceeds from the disposal of Cryptocurrency exempt from CGT if they are used to pay for personal expenditure via credit card, debit card/bank account or conversion to AUD?

Answer

No

Question 1

Are the proceeds from the disposal of Cryptocurrency exempt from CGT if they are used to pay for a motor vehicle via conversion to AUD?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2018

The scheme commences on:

01 July 2014

Relevant facts and circumstances

You acquired cryptocurrency

You have disposed of all of the original cryptocurrencies acquired

You have made a gain

You have conducted crypto to crypto transactions

You have withdrawn $Xin AUD via multiple exchanges

You have paid $Y towards various credit cards

You purchased a motor vehicle

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

You acquired and held cryptocurrencies as an investment; as such you will not be entitled to the personal use asset exemption. However, if you hold your cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount to reduce a capital gain you make when you dispose of it.

You have held the cryptocurrencies until they have made a substantial gain. Therefore, the capital gain made on the disposal of the tokens cannot be disregarded, and must be included in your income tax return as assessable income.

Detailed reasoning

Personal use

Cryptocurrency is only capable of being acquired, held and transacted with. Both the period of holding and the nature of the subsequent transaction will be relevant to whether your cryptocurrency is a personal use asset. The relevant time for determining whether or not an asset is a personal use asset is at the time of its disposal.

During a period of ownership, the way that cryptocurrency is kept or used may change (for example, cryptocurrency may originally be acquired for personal use and enjoyment, but ultimately be kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business). The longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset.

If you have to exchange a cryptocurrency you own to Australian dollars (or to a different cryptocurrency) to purchase or acquire the items for personal use or consumption, then this strongly indicates the cryptocurrency you own was acquired, held and used for a purpose other than personal use or enjoyment.

Cryptocurrency cannot be a personal use asset if it is mainly acquired, kept or used as an investment. The Income Tax Assessment Act 1997 (ITAA 1997) does not provide a definition of investment, however generally it’s the allocation of a resource (money) in the expectation of some benefit in the future.

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 may be where an intangible asset is used to directly acquire an asset held mainly for personal use and enjoyment. That is, the intangible asset can take on the character of another asset.

An example of an intangible asset would be an option; an option to purchase a boat for personal use would itself 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 your cryptocurrencies are both an intangible and a financial asset and have been held as an investment. Accordingly, the capital gain made on the disposal of your cryptocurrencies will be assessable as a capital gain.