Edited version of private advice

Authorisation Number: 1051901680634

Date of advice: 29 September 2021

Ruling

Subject: Am I in business - cryptocurrency

Question 1

Are you carrying on a business of cryptocurrency trading?

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

You and your spouse run a business.

In March 20XX, you ceased working in the business and commenced cryptocurrency trading activities.

On XX March 20XX you created a trading account and commenced trading cryptocurrency.

After making a loss in a short period of time you decided it wasn't as easy as you thought to trade so you sold all cryptocurrency held and ceased trading activity on XX May 20XX.

You injected $X into your trading account between March and May 20XX and you withdrew the balance of the trading account on XX May 20XX which was $X after disposing of all cryptocurrency held.

Between March and May 20XX you conducted XXX purchases and sales of cryptocurrency on XX days. Cryptocurrency trading activity fluctuated from between X trade up to XX trades on each of those days.

Your spouse continued to run the business between March and May 20XX and you received an income from the family trust which is why you could afford to give cryptocurrency trading activities a try.

The only equipment you required to complete the cryptocurrency trading activity was a laptop.

The only records of your cryptocurrency trading activity is the end of financial year statement 20XX issued by the trading account provider.

The only expert advice you sought prior to commencing was with your accountant, who advised that you could afford the initial capital.

You hoped you could make extra income out of buying and selling cryptocurrency focusing on the fluctuation of prices. You had no intention of holding cryptocurrency long-term.

All the knowledge you obtained about cryptocurrency was from the internet and YouTube.

You subscribed to about XX daily cryptocurrency newsletters and followed about XX YouTube people daily on the topic of cryptocurrency.

You have previous experience working in banking and finance and running your own business.

You decided to purchase cryptocurrency that you thought had opportunity for high short term growth and sold when you thought it would decline.

You set a limit to sell at 10% loss (decline in value) which you kept reaching.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as including:

...any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

There is no definition for 'carrying on a business' in either the ITAA 1997 or the Income Tax Assessment Act 1936.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioner's view on the meaning of carrying on a business for primary production and outlines a number of factors developed by courts and tribunals that they have found to be indicative of when a taxpayer is carrying on a business of primary production. These indicators are also applicable to non-primary production activities:

(a) the existence of a profit-making and commercial purpose (Walsh J in Thomas v. Federal Commissioner of Taxation (1972) ATR 165; 72 ATC 4094 held that the 'existence of a profit-making and commercial purpose' should be considered in light of the other indicia, as well as any knowledge, previous experience or skill of the taxpayer in the relevant activity);

(b) the taxpayer has more than a mere intention to engage in business;

(c) the existence of an intention to make a profit or a genuine belief that a profit will be made;

(d) the size and scale of the activities;

(e) the repetition and regularity of the activities;

(f) the activities are carried out in a systematic and organised (i.e. businesslike) manner usual for that type of business;

(g) The size, scale and permanency of the activity; and

(h) Can the activity be better described as a hobby, a form of recreation or sporting activity?

The above factors must be considered in light of one another, with no single factor being determinative of whether the taxpayer is engaged in carrying on a business. Even where any one factor is not present, this will not necessarily mean that a business is not carried on: Evans v. Federal Commissioner of Taxation (1989) 20 ATR 922.

Whether a business is being carried on for income tax purposes is a question of fact and degree, to be determined objectively on the specific circumstances of the case, weighing the various indicators outlined above against one another: Ferguson v. Federal Commissioner of Taxation (1979) 9 ATR 873.

In your case, although you have experience in running your own businesses and have worked in the banking and finance industry, you did not possess knowledge, previous experience or skill in the area of cryptocurrency trading. Knowledge was sought from newsletters you subscribed to and YouTube clips.

Although you had the intention to engage in business and an intention to make a profit, your cryptocurrency transactions do not show the required repetition, regularity, scale and permanency required to be considered a business. How you conducted cryptocurrency trades did not show regularity, routine or a system. You did not maintain records of your cryptocurrency trades as usual for a business of this type, apart from the annual statement issued at the end of the financial year by your trading account provider.

Taking all the facts into consideration, it is considered that you were not carrying on a business of cryptocurrency trading. As a result any gain or loss from your cryptocurrency trading activities should be returned on capital account.