Edited version of your private ruling

Authorisation Number: 1051972615838

Date of advice: 12 April 2022

Ruling

Subject: TOFA - Division 230 ITAA1997 - cryptocurrency arbitrage function and investments and bullion investments

Question 1

Will the TOFA rules apply to cryptocurrency transactions entered by the company using the arbitrage function?

Question 2

Will the TOFA rules apply to cryptocurrency held by the company other than for trading under the arbitrage function?

Answer

No

Question 3

Will the TOFA rules apply to cryptocurrency held by the discretionary trust?

Answer

No

Question 4

Will the TOFA rules apply to gold and silver bullion held as investments on the company's balance sheet?

Answer

No

Question 5

Will the TOFA rules apply to the individual taxpayer when running the arbitrage function personally?

Answer

No

Question 6

If the answer to any of Questions 1 through 5 is 'yes', will the realisation method be the most appropriate for determining TOFA gains and losses?

Answer

Not applicable because the answer to Questions 1 through 5 is 'no'.

Question 7

If the answer to Question 1 is 'yes', will the TOFA gain be the additional cryptocurrency generated as a result of the arbitrage function, with ordinary cryptocurrency disposals being sales revenue and ordinary cryptocurrency acquisitions being purchases?

Answer

Not applicable because the answer to Question 1 is 'no'.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Background to the arbitrage trading arrangements

1.            An individual taxpayer developed a cryptocurrency trading bot, taking advantage of arbitrage opportunities present in "digital liquidity pools".

2.            The bot sends a transaction to one of its smart contracts, which consolidates multiple trades into one transaction.

3.            An example of such a transaction would be Coin A>Coin B>Coin C>back to Coin A. This represents one single transaction on the smart contract.

4.            The effect of the transaction is an increase in the balance of the respective coin that was the subject of the arbitrage transaction. For example, the balance of Coin A at the conclusion of the transaction is higher than the balance of Coin A that is sitting in the smart contract initially - that is, the transaction starts with an amount of x of Coin A and ends with x+dx of Coin A.

5.            The individual taxpayer initially commenced trading activities during the 20XX income year under their personal name. However, the individual now conducts trading activities through a company. The company is wholly owned by a discretionary trust. The individual taxpayer transferred cryptocurrency trading stock from their own name to the company later during the 20XX income year. The individual didn't transfer intellectual property rights.

6.            The bot generates a substantial level of turnover. Each individual transaction entered into by the trading bot doesn't hold substantial value and many transactions only yield a small profit. However, there are multiple thousands of trades undertaken each day. (This edited version has redacted information about the company's turnover for the relevant income years).

Transactions, trades and turnover

7.            The number of transactions each day are variable and depend on the activity on the network.

•                    Many transactions are sent, but not all succeed. The client estimates more than x% of transactions fail under the current version of the bot.

•                    The current version of the bot sends many thousands of transactions each day.

•                    There were several thousand successful trades (but a fraction of attempted transactions) over a recent 7-day period.

8.            (This paragraph was about the trading bot's turnover. It has been redacted for privacy concerns.)

9.            ((This paragraph was about the client's turnover estimates for relevant periods. It has been redacted for privacy concerns.)

Table 1: turnover estimates for relevant periods (redacted for privacy concerns)

Trading bot and uncertainty

10.         The trading bot enters transactions independently of any human oversight. Once the arbitrage opportunity is identified the bot sends a transaction to a smart contract which consolidates multiple trades and is completed in a single smart contract transaction.

11.         Once the trading bot sends a transaction to the smart contract, the exchanges from CoinA>CoinB>CoinC>Coin A are all completed in a single smart contract transaction on the same day. Once the arbitrage transaction is completed the cryptocurrency is delivered immediately.

12.         Cryptocurrency prices are extremely volatile, so the amounts/values of cryptocurrency exchanged upon entering into the execution of the smart contract can vary from time to time.

13.         The bot is able to calculate the expected profit for a given trade. However, there are several factors which can interfere with the trade, and cause the transaction either to fail, or to return a different profit/loss than expected. The primary factor is competition from other arbitrage traders. If another arbitrage trader is faster, their transaction will be executed before the taxpayer's, which usually results in the taxpayer's attempted trade failing. Alternatively, the trade may return a smaller profit than expected. It's also possible for ordinary trading activity to affect the state of the network, and alter the returns on a trade.

14.         The exchange rates within pools can change between the time the bot sends the transaction and it being executed. This usually results in the transaction failing.

Exchanges used by the arbitrage function

15.         All the cryptocurrency exchanges the company uses for the arbitrage trades are decentralised. The exchanges are smart contracts operating on the blockchain. They use an automated market making algorithm to facilitate trades.

16.         The company currently uses many different exchanges.

17.         The arbitrage function uses a select number of starting coins for an arbitrage trade, but may swap them with a large and unverifiable number of intermediate coins. In the example used in paragraph 3, Coin A is a starting coin, and Coins B and C are intermediate coins. Starting coins are usually determined by which coin a network uses to pay fees in.

18.         The company currently uses x, but has used y cryptocurrency types in total as a starting coin for an arbitrage trade.

19.         It's impractical to list or keep track of intermediate coins. The arbitrage software is able to identify and use completely new coins shortly after they are added to a decentralised exchange. The only common feature of these coins is that they are all in liquidity pools on decentralised exchanges and can be traded.

20.         Successful arbitrage trades result in an increased coin balance of the starting coin traded. The company allows these increases to accumulate. It trades them from time to time for other cryptocurrencies, or sells them for stablecoins[1]. Cash is usually acquired by selling stablecoins on a centralised exchange. These non-arbitrage trades are much less frequent, and arbitrage profits may be held for some time, perhaps months, before being traded for something else.

Other cryptocurrency holdings

21.         The individual taxpayer also transferred additional cryptocurrency from their personal name to the discretionary trust. The individual taxpayer transferred a significant number of tokens for a single cryptocurrency type (Coin X) on a single day during the 20XX income year. The parties determined that this was an arm's length price using the daily close price for Coin X.

22.         Other cryptocurrency trades are made separately to the bot activity. The other cryptocurrency trades are conducted on centralised and decentralised exchanges.

23.         The trustee's intension is to hold these tokens long-term for capital growth. None of the tokens have been sold. If the trust does make any trades, they will likely be made on an Australian blockchain exchange.

24.         To clarify, the company doesn't currently make or hold any long-term cryptocurrency investments.

Gold and silver bullion

25.         The company invests in gold and silver bullions, making purchases in the 20XX financial year. It intends to hold these bullions as long-term investments, and will record them as investments on its balance sheet.

26.         The company holds less than x oz of silver and less than y oz of gold. They were purchased during the 20XX income year. No bullion has been sold. All bullion holdings were acquired through commodity markets at market prices.

Financial reporting

27.         Special purpose financial reports are prepared in accordance with the Australian Accounting Standards for both the company and trust as they are solely for the individual taxpayer's use.

28.         (This paragraph has been partly redacted for privacy concerns because it contained details about the company's turnover, value of assets, and number of employees). From the 20XX financial year onwards the company will still produce financial statements as special purpose financial reports.

29.         Financial statements for both the company and trust aren't audited as regulatory standards don't require this.

30.         The individual taxpayer won't prepare any financial statements as they are no longer running any business.

Accounting for cryptocurrency

31.         If the TOFA rules don't apply to the company's arbitrage activities, it will present the cryptocurrency holdings in its financial statements as inventory in accordance with AASB 102 - Inventories.

32.         The cryptocurrency trading stock is measured at the lower of cost and net realisable value. Cost of inventory is determined using the first-in-first-out basis and is net of any rebates and discounts received. Net realisable value is estimated using the most reliable evidence available at the reporting date and inventory is written down through an obsolescence provision if necessary.

33.         If the TOFA rules don't extend to the discretionary trust's investing activities, it will present the cryptocurrency holdings in its financial statements as inventory in accordance with AASB 138 - Intangible Assets.

34.         The cryptocurrency held on capital account is measured at cost less any accumulated amortisation and impairment*. The cost is determined by how much was paid to acquire the cryptocurrency assets less any brokerage/transaction costs.

* In most cases no amortisation is expected for cryptocurrencies.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 230-45

Income Tax Assessment Act 1997 section 230-50

Income Tax Assessment Act 1997 section 230-350

Income Tax Assessment Act 1997 section 230-450

Income Tax Assessment Act 1997 section 230-455

Income Tax Assessment Act 1997 section 230-530

Income Tax Assessment Act 1997 section 820-930

Income Tax Assessment Act 1997 section 974-70

Income Tax Assessment Act 1997 section 974-75

Income Tax Assessment Act 1997 section 974-160

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

In these reasons, all legislative provisions are in the Income Tax Assessment Act 1997.

Summarised reasons for answers to questions

Question 1

Will the TOFA rules apply to cryptocurrency transactions entered by the company using the arbitrage function?

Summary

35.         No. The TOFA rules won't apply to transactions entered using the arbitrage function.

•                    We think these transactions will be financial arrangements under section 230-45, because they create cash settlable rights and obligations under paragraph 230-45(2)(e).

•                    However, the exception for short-term non-money amounts in section 230-450 will apply to prevent the TOFA rules applying. Very broadly, the arbitrage function transactions exchange cryptocurrency instantaneously. We don't think cryptocurrency is money or a money equivalent.

•                    The TOFA extension for commodity trading in section 230-530 won't apply. We think there's uncertainty about whether cryptocurrency is a commodity in the sense used in this section. But even if it is, section 230-530 still won't apply because the company doesn't produce audited financial reports complying with accounting principles.

Question 2

Will the TOFA rules apply to cryptocurrency held by the company other than for trading under the arbitrage function?

Summary

36.         No. The TOFA rules wouldn't apply to the company' other cryptocurrency holdings (either current stablecoin holdings, or any other cryptocurrency acquisitions it might make) outside the arbitrage function.

•                    We don't think either cryptocurrency holdings, or the contracts to purchase them, will be financial arrangements. Merely holding cryptocurrency doesn't create cash settlable rights or obligations. The only cash settlable obligation is to give money under the purchase contracts. Broadly, the point of the purchase contract is to acquire cryptocurrency, and that right isn't a cash settlable right. Therefore, paragraphs 230-45(1)(d),(e) and (f) will apply to exclude the purchase contracts from being financial arrangements.

•                    Even if these holdings were financial arrangements, the exclusion for short-term non-money amounts in section 230-450 would apply to prevent the TOFA rules applying for the same reasons as Question 1.

•                    The TOFA extension for commodity trading in section 230-530 won't apply for the same reasons as Question 1.

Question 3

Will the TOFA rules apply to cryptocurrency held by the discretionary trust?

Summary

37.         No. The TOFA rules won't apply to cryptocurrency held by the discretionary trust for the same reasons as Question 2.

Question 4

Will the TOFA rules apply to gold and silver bullion held as investments on the company's balance sheet?

Summary

38.         No. The TOFA rules won't apply to the company' gold and silver bullion holdings.

•                    We don't think bullion holdings, or a contract to purchase them, will be financial arrangements. Merely holding bullion doesn't create cash settlable obligations. The only cash settlable obligation is to give money under the purchase contracts. Like Question 2, the point of the purchase contract is to acquire bullion, and that right isn't a cash settlable right. Paragraphs 230-45(1)(d),(e) and (f) will apply to exclude the purchase contracts from being financial arrangements.

•                    Even if these holdings were financial arrangements, the exclusion for short-term non-money amounts in section 230-450 would apply to prevent the TOFA rules applying. Very broadly, the purchase contracts are immediate, not deferred, and bullion isn't money, or a money equivalent, or a financial derivative.

•                    The TOFA extension for commodity trading in section 230-530 won't apply. While bullion is a commodity, the company doesn't seem to be a bullion commodity trader. In any event, the company isn't eligible for the extension because it doesn't produce audited financial reports complying with accounting principles.

Question 5

Will the TOFA rules apply to the individual taxpayer when running the arbitrage function personally?

Summary

39.         No. The TOFA rules won't apply to the individual taxpayer for the same reasons we gave for the company in Question 1. In any event, individuals are excluded from the rules unless they elect for TOFA to apply.

Question 6

If the answer to any of Questions 1 through 5 is 'yes', will the realisation method be the most appropriate for determining TOFA gains and losses?

Summary

40.         Not applicable because the answer to Questions 1 through 5 is 'no'. TOFA doesn't apply to any transactions covered by this ruling, so the relevant taxpayers don't need to determine any TOFA gains and losses.

Question 7

If the answer to Question 1 is 'yes', will the TOFA gain be the additional cryptocurrency generated as a result of the arbitrage function, with ordinary cryptocurrency disposals being sales revenue and ordinary cryptocurrency acquisitions being purchases?

Summary

41.         Not applicable because the answer to Question 1 is 'no'. TOFA doesn't apply to any transactions covered by this ruling, so the relevant taxpayers don't need to determine any TOFA gains and losses.

Reasoning for Questions 1, 2, 3, 4 and 5

Overview

42.         Division 230 is about the tax treatment of gains and losses from certain financial arrangements. We refer to the rules in Division 230 as the TOFA rules. Very broadly, the TOFA rules:

•                    assess gains as assessable income, and allow losses as deductions

•                    include alternative methods for calculating gains and losses from financial arrangements

•                    override other rules to the extent the TOFA rules apply.

43.         Broadly, the TOFA rules apply to financial arrangements. Financial arrangement has the meanings given by sections 230-45 and 230-50. Broadly, you have a financial arrangement under section 230-45 if you have a cash settlable right or obligation under an arrangement. Nevertheless, an arrangement won't be a financial arrangement if it includes a significant right or obligation which isn't a financial benefit, or isn't cash settlable. Broadly, you have a financial arrangement under section 230-50 if it's an equity interest or creates rights or obligations about equity interests. Section 230-55 has rules for working out if multiple rights and obligations form part of the same arrangement.

44.         However, there are exceptions to the general rules. In some cases, the TOFA rules don't apply even if something's a financial arrangement, and in some cases the TOFA rules will apply to non-financial arrangements. For example:

•                    there's an exclusion for short-term (section 230-45) financial arrangements involving non-money amounts: section 230-450

•                    certain taxpayers are excluded where there's no significant deferral from the financial arrangement: section 230-455

•                    TOFA applies to foreign currency, non-equity shares, and commodities held by traders, as if they were financial arrangements: see section 230-530.

45.         We won't discuss the other exceptions in subdivision 230-H.[2] They'd only be relevant if the exception in sections 230-450 didn't apply, and we think it does. In any event, we don't think the other exceptions would apply here.

46.         The questions raised by this ruling application require us to apply the TOFA rules to three different arrangements.

•                    The first arrangement is about transactions entered by a trading bot to simultaneously swap cryptocurrency types to arbitrage from short-term differences in cryptocurrency conversion rates. This is relevant to the company, and also the individual taxpayer for the period they were running the arbitrage function under their own name. We call this the 'arbitrage function' as a shorthand.

•                    Second, other cryptocurrency holdings. This is relevant to the discretionary trust's long-term cryptocurrency investments. It's also relevant to the company' stablecoin holdings, held for conversion to cash. The same reasoning would apply to other future cryptocurrency acquisitions it might make other than for arbitrage trading (for example, long-term investments, or more conventional trading on regular cryptocurrency exchanges, without an automated arbitrage function). We talk about these as 'cryptocurrency holdings' as a shorthand.

•                    Third, long-term investments in bullion. This is relevant to the company. We call these 'bullion investments'.

47.         Some issues are common to all arrangements:

•                    are the arrangements financial arrangements under section 230-45?

•                    does the exception for short-term non-money arrangements in section 230-450 apply?

•                    does the extension in section 230-530 apply?

We summarise our responses to these issues in Table 2.

Table 2: Overview - does TOFA apply to these arrangements?

Is there a financial arrangement?

48.         Something will be a financial arrangement if it qualifies under sections 230-45 or 230-50. Broadly:

•                    an arrangement will qualify under section 230-45 if it creates cash settlable rights or obligations, and doesn't create non-cash settlable rights or obligations

•                    a right or obligation to a financial benefit is deemed to be cash settlable under subsection 230-45(2) if it:

-        is (or can be settled in) money or a money equivalent

-        is dealt with to profit from short-term price fluctuations

-        is convertible to money or a money equivalent in a highly liquid market, and meets other conditions.

•                    an arrangement will qualify under section 230-50 if it's an equity interest, or creates rights or obligations about equity interests.

We describe and apply these sections in the Annexure. See Tables 3 and 4 for section 230-45, and Table 5 for section 230-50.

49.         Section 230-55 has rules for whether rights, obligations, and arrangements are treated separately or grouped when applying the TOFA rules. Rights and obligations to receive multiple financial benefits are treated as separate rights and obligations: subsections 230-55(1) and (2). Whether a number of rights are a single, or 2 or more separate arrangements is a question of fact, considering listed circumstances: subsection 230-55(4).

50.         We conclude that the cryptocurrency transactions under the arbitrage function are financial arrangements, but not the cryptocurrency and bullion holdings. Broadly:

•                    all rights and obligations under the arbitrage function are cash settlable because they are entered to arbitrage from differences in cryptocurrency conversion rates

•                    simply holding cryptocurrency or bullion doesn't create any rights or obligations to a financial benefit, so it can't be a financial arrangement

•                    contracts to purchase cryptocurrency or bullion don't create obligations to deliver assets: those obligations can't be settled with money or money-equivalents

•                    section 230-50 isn't relevant because cryptocurrency and bullion don't create any equity-like interests in an entity.

See the Annexure, Tables 3, 4 and 5 for more detail.

Does the exception for short-term non-money amounts in section 230-450 apply?

51.         Very broadly, section 230-450 excludes financial arrangements involving short-term non-money amounts from the TOFA rules. Section 230-450 says Division 230 doesn't apply to gains and losses from a financial arrangement where certain requirements are met. We describe and apply these rules in more detail in the Annexure, Table 11. But we summarise them here in seven bullet points:

•                    the arrangement is a financial arrangement under section 230-45 (about cash settlable arrangements)

•                    you acquired or provided goods, other property or services

•                    those goods, property or services aren't money or a money equivalent

•                    you provided financial benefits as consideration for those goods, property or services

•                    the period between providing consideration and providing property, goods or services didn't exceed 12 months

•                    the arrangement isn't a derivative financial arrangement

•                    a fair value election doesn't apply.

52.         We think these conditions are met for the arbitrage function, and would be met for the cryptocurrency and bullion holdings if they were financial arrangements. Cryptocurrency and bullion are property. They aren't money or money equivalents. The relevant entities provided either cryptocurrency or money to acquire them. Both cryptocurrency and bullion are financial benefits. Delivery was instantaneous. The arrangements aren't derivative financial arrangements for reasons explained in the Annexure at paragraphs 82 through 85. The entities aren't eligible to make a fair value election: see paragraphs 59 through 60.

Does the exception for certain entities in section 230-455 apply?

53.         Section 230-455 also excludes the TOFA rules from applying to a list of qualifying entities in specified circumstances. The list includes:

•                    individuals: subparagraph 230-455(1)(a)(i)

•                    superannuation entities, superannuation funds, managed investment schemes or similar entities: subparagraph 230-455(1)(a)(ii)[3]

•                    ADIs, securitisation vehicles, and entities required to registered under financial data collection laws: subparagraph 230-455(1)(a)(iii)[4]

•                    other entities: subparagraph 230-455(1)(a)(iv).

Broadly, section 230-455 also requires that the arrangement either doesn't last longer than 12 months, or the arrangement isn't a qualifying security[5]: see paragraph 230-455(1)(e).

54.         Turnover and asset tests apply to all categories except individuals. 'Other entities' will only be excluded if they meet three turnover tests. The turnover tests apply to either the current or previous income year, depending on when the entity came into existence. To broadly summarise these tests:

•                    the entity's aggregated turnover[6] is less than $100 million: paragraph 230-455(4)(a)

•                    the value of the entity's financial assets is less than $100 million: paragraph 230-455(4)(b)

•                    the value of the entity's assets is less than $300 million: paragraph 230-455(4)(c).

55.         However, section 230-455 won't apply if the entity elects for the TOFA rules to apply: see subsections 230-455(6), (7), (8) and (9).

56.         Section 230-455 isn't relevant because we've concluded that the arrangements are already excluded from TOFA under section 230-450.

57.         For completeness, if section 230-450 didn't apply, section 230-455 would only be relevant to the individual taxpayer.

•                    As an individual, they would be excluded from the TOFA rules under subparagraph 230-455(1)(a)(i) unless they elected to apply them.

•                    We have no information to suggest that any relevant entities are superannuation or investment entities, ADIs, securitisation vehicles, or covered by financial data collection laws.

•                    (This bullet point discussed the company's turnover. It has been redacted in this edited version for privacy concerns).[7]

•                    (Part of this bullet point discussed the discretionary trust's turnover. That discussion has been redacted in this edited version for privacy concerns.) The discretionary trust will be connected with the company if both entities are controlled by the individual taxpayer. If so, the discretionary trust's turnover would include the company' turnover. We haven't determined this issue because we think the arrangement is excluded under section 230-450.

•                    The transactions covered by the arbitrage function, the cryptocurrency purchase contracts and the bullion purchase contracts are all instantaneous, so paragraph 230-455(1)(e) would be met.

Do the extended rules in section 230-530 apply?

58.         Section 230-530 extends the TOFA rules by deeming certain arrangements to be financial arrangements. Division 230-530 will apply as if arrangements constituted a financial arrangement in four situations, about:

•                    foreign currency: subsection 230-530(1)

•                    non-equity shares: subsection 230-530(2)

•                    commodities held by traders: subsection 230-530(3)

•                    offsetting commodity contracts held by traders: subsection 230-530(4).

See the Annexure, Table 12 for a description of the rules in section 230-530.

59.         Very broadly, the rules in subsection 230-530(3) and (4) for commodity traders apply if the entity:

•                    trades or deals in the commodity, or has a practice of dealing in contracts with the commodity

•                    makes a fair value election or elects to rely on financial reports

•                    is required under accounting principles to classify or designate the commodity at fair value through profit and loss.

You're eligible to make a fair value election, or an election to rely on financial reports, if you prepare audited financial reports in accordance with accounting principles. See sections 230-210 and 230-395.

60.         We describe and apply the requirements for section 230-530 in more detail in the Annexure, Table 12. To loosely summarise our reasoning, we don't think the exceptions will apply for the following reasons.

•                    Foreign currency is a unit of account accepted by another country's laws to discharge monetary obligations. In our view, neither cryptocurrency or bullion is foreign currency because they aren't generally accepted in that way.

•                    Non-equity shares are shares in companies which don't meet the definition of an 'equity interest'. Cryptocurrency and bullion aren't shares, and they aren't equity interests either.

•                    The commodity trading exceptions only apply to certain dealings in commodities, where the entity makes a fair value election. Commodities generally mean physical items used in trade and commerce. You can only make a fair value election if you produce audited financial statements in accordance with accounting principles. We think there's uncertainty about whether cryptocurrency is a commodity. Even if it is, none of the relevant entities produce audited financial statements in accordance with accounting principles.

Reasoning for Questions 6 and 7

61.         Very broadly, the TOFA rules apply to work out the tax consequences of financial arrangements. Section 230-15 says gains from financial arrangements are included in assessable income, and losses from financial arrangements are deductible.

62.         Broadly, the TOFA rules apply to arrangements which qualify as a financial arrangement, unless exceptions or the extended rules apply.

•                    Something will be a financial arrangement if it's cash settlable (section 230-45) or is an equity interest (section 230-50).

•                    Even if something's a financial arrangement, TOFA won't apply if an exception applies - such as section 230-450 for short-term non-money amounts.

•                    If the extended rules in section 230-530 apply, TOFA will apply as if something qualified as a financial arrangement.

63.         If the TOFA rules apply, there are several alternative methods which could apply to calculate gains and losses. These are listed in section 230-40. Very broadly:

•                    the accruals method will apply if the gain or loss meets a test of being 'sufficiently certain' under section 230-100

•                    the realisation method will apply if the gain or loss doesn't meet the sufficiently certain test

•                    taxpayers may be able to elect to apply other methods: fair value, foreign exchange retranslation, hedging financial arrangements, or relying on financial reports.

64.         The TOFA calculation rules aren't relevant to this ruling. There's no need to calculate gains and losses because the TOFA rules don't apply for the reasons we gave in Questions 1, 2, 3, 4 and 5 and the Annexure.

Annexure: more detailed reasoning

Table 3: requirements in subsection 230-45(1)

Are all trades conducted under a single smart contract a single arrangement?

65.         It's a question of fact and degree whether transactions form a single arrangement or multiple arrangements under the TOFA rules. Subsection 230-55(4) says that whether a number of rights or obligations are themselves an arrangement or are two or more separate arrangements is a question of fact and degree. It says it's necessary to consider the rights and obligations both separately and in combination. Relevant factors to determining this question include:

•                    the nature of the rights and obligations

•                    terms and conditions

•                    circumstances surrounding their creation, proposed exercise, or performance (including what can be reasonably be seen as the purposes of one or more of the entities involved)

•                    whether they can be dealt with separately or must be dealt with together

•                    normal commercial understandings or practices (including whether they are regarded commercially as separate or as a group or series)

•                    the objects of the TOFA rules.

66.         Notes 1 and 2 to subsection 230-55(4) give some suggestions for how separate contracts which are linked commercially might form one arrangement:

Note 1:

If you raised funds by means of a contract that you would not have entered into without entering into another contract, and neither contract could be assigned to a third party without the other also being assigned, this would tend to indicate that your rights and obligations under the 2 contracts together constitute one arrangement.

Note 2:

If the commercial effect of your individual rights and/or obligations in a group or series cannot be understood without reference to the group or series as a whole, this would tend to indicate that all of your rights and/or obligations in the group or series together constitute one arrangement.

67.         Broadly, the object of the TOFA rules is to ensure the tax consequences for gains and losses don't distort commercial decision making. Section 230-10 says:

The objects of this Division are:

(a) to minimise the extent to which the tax treatment of gains and losses from your *financial arrangements distorts, by providing inappropriate impediments and stimulation, your trading, financing and investment decisions and your risk taking and risk management; and

(b) to do so by aligning more closely the tax and commercial recognition of gains and losses from your financial arrangements in the following ways:

(i) by allocating the gains and losses to income years throughout the life of your financial arrangements on a reasonable basis;

(ii) by generally recognising gains and losses on revenue rather than capital account; and

(c) to appropriately take account of, and minimise, your compliance costs.

68.         We identify some relevant circumstances in this paragraph, drawing on the example from the facts. (Coin A is swapped for Coin B, Coin B for Coin C, Coin C for Coin A.)

•                    Paragraph (d) might point towards each trade being a separate arrangement. Each trade (say Coin A for Coin B) could make sense taken alone.

•                    When we consider paragraph (c), we think the circumstances about the proposed exercise and performance show the three trades are linked. They are entered simultaneously under the same contract.

•                    Also under paragraph (c), we think the company's purpose demonstrates the trades are linked. It has a common purpose in entering all three transactions. Its goal is to profit from arbitrage, not to acquire or dispose of cryptocurrency assets. It will end up holding the same type of cryptocurrency (Coin A) which it held before entering the smart contract. It will hold a larger amount of Coin A if the arbitrage attempt is successful. The company is indifferent about what types of cryptocurrency it holds at any point - if wouldn't matter whether the arbitrage was achieved through ending with Coin A or some other cryptocurrency.

•                    For similar reasons, we think normal commercial understandings and practices tend to show the transactions are linked: paragraph (e). The true commercial purpose for the transaction can only be understood by looking at all trades together.

•                    We think treating all trades under a smart contract as a single arrangement would tend to promote the objects of the TOFA rules: paragraph (f). From the company's perspective, it has entered the smart contract to make a profit. Recognising each trade separately would require it to analyse three separate transactions and potentially calculate gains or losses from each. Also, looking at the commercial effect of its rights and obligations under a single trade would be misleading. That might produce distorting effects and increase compliance costs.

69.         We think these factors, on balance, show it's appropriate to treat all transactions under a single smart contract as a single arrangement. When we consider the company's purpose, we think all transactions are connected. If those links were ignored for tax purposes, that could produce distortion or misalignment, defeating the object of the TOFA rules. We think those considerations outweigh the factor that each transaction could be (theoretically) dealt with separately. We think the notes to subsection 230-55(4) confirm this is the right approach. Here, the commercial effect for the company can't be understood by looking at each trade in isolation. For example, looking at the trade from Coin A to Coin B alone is misleading. It isn't really disposing of Coin A and acquiring Coin B. When all trades are considered together, the cryptocurrency holdings will be the same before and after the transaction. From a commercial viewpoint, the three trades are a single arrangement. The same reasoning applies to the individual taxpayer for the period they were running the arbitrage function under their own name.

Table 4: cash settlable obligations: subsection 230-45(2)

Table 5: Financial arrangements under section 230-50

Table 6: Are the financial benefits money?

For context, this discussion follows from Table 4. A financial benefit will be cash settlable under paragraph 230-45(2) if it's money.

Are the financial benefits money equivalents?

70.         A financial benefit will be cash settlable under subsection 230-45(2) if it's a money equivalent.

71.         The definition of 'money equivalent' has two limbs. Section 995-1 says:

money equivalent means:

(a) a right to receive money or something that is a *money equivalent under this definition; or

(b)          a *financial arrangement (within the meaning of section 230-45).

72.         While the definition seems somewhat circular, we think it has an intelligible meaning. The reference to 'something that is a money equivalent under this definition' means a right to receive something covered by paragraph (b). A financial arrangement would be a money equivalent under paragraph (b). Therefore, a right to receive something that is a financial arrangement would be a money equivalent under paragraph (a). We think this reading is supported by paragraph 2.71 of the relevant Explanatory Memorandum,[25] which says a right to receive a financial arrangement will itself be cash settlable:

2.71 Because of this definition of 'money equivalent', a cash settlable right or obligation includes a right to receive, or obligation to provide, a financial arrangement which itself meets the test for a cash settlable financial arrangement, in addition to a right to receive, or obligation to provide, a right to such a financial arrangement, or a right to receive money.

73.         Therefore, 'money equivalent' has three elements. Something will be a money equivalent if it's either:

•                    a right to receive money: first part of paragraph (a)

•                    a financial arrangement: paragraph (b)

•                    a right to receive a financial arrangement: second part of paragraph (a).

We apply these elements to the three arrangements in Table 7.

Table 7: are financial benefits money equivalents?

Are there markets for the financial benefits that have a high degree of liquidity?

74.         The phase 'high degree of liquidity' and the term 'liquidity' aren't defined or explained in tax legislation, so we look to their ordinary meaning. An asset is liquid if it can be readily converted into money. The Macquarie Dictionary[28] says meanings of liquidity include:

•                    "the state of having assets either in cash or readily convertible into cash"

•                    "the general availability of funds in a market, as created by federal budget deficits, foreign exchange transactions, and bank holdings of liquid assets and statutory reserve deposits".

75.         The Explanatory Memorandum[29] suggests the 'high degree of liquidity' requirement will be met if the relevant right or obligation could be readily traded in the relevant market. Paragraph 2.84 says a financial benefit will be readily convertible into money or a money equivalent and will be subject to a highly liquid market if, for example:

•                    the financial benefit is a security or commodity traded in an active market

•                    it's an amount of foreign currency that is readily convertible into the functional currency of the taxpayer

•                    a right or obligation that is a publicly traded security for which the market isn't very active will still be readily convertible to cash and subject to a highly liquid market if the number of shares or other units for the security is small relative to the daily transaction volume for that security.

However, the Explanatory Memorandum goes on to say that a right or obligation over the same security wouldn't be readily convertible if the number of shares or units is large relative to the daily transaction for that security.

We apply these principles to cryptocurrency and bullion in Table 8.

Table 8: do cryptocurrency and bullion have a high degree of liquidity?

Table 9: Are the financial benefits (not) subject to a substantial risk of a substantial decrease in value?

76.         For context, this discussion is about whether the requirement in subsection 230-45(4) is met. This requires that for the recipient of the relevant financial benefit, the amount of money or money equivalent (into which the benefit could be converted) is not subject to a substantial risk of a substantial decrease in value.

Table 10: Is the purpose of the relevant taxpayers to convert or liquidate the financial benefits into money or a money equivalent?

77.         As context, this Table is about whether paragraph 230-45(5)(b) is met. This paragraph is satisfied if one of the taxpayer's purposes for entering an arrangement is so that the financial benefit may be converted or liquidated into money or a money equivalent. However, it doesn't apply if that only happens as part of expected purchase, sale or usage requirements.

Table 11: Does the exception for short-term non-money amounts in section 230-450 apply?

Is cryptocurrency property?

78.         The ATO view is that Bitcoin is property. TD 2014/26[53] concludes that Bitcoin is a CGT asset for the purposes of subsection 108-5(1). To reach that conclusion, TD 2014/26 reasoned that Bitcoin was property because it gives holders rights over information. To summarise some points it makes:

•                    property isn't a thing: it's a legal relationship describing the power that an entity can permissibly exercise over a thing, such as controlling access [paragraph 6]

•                    there's no single test or determinative factor which identifies proprietary rights, but relevant considerations include excludability, commercial value, and enforceability [paragraph 7]

•                    Bitcoin is a legal relationship giving an entity holding rights over certain digital information [paragraph 8]

•                    Bitcoin holding rights allow an entity to trade Bitcoin, and use it for payment [paragraph 9]

•                    those rights are proprietary because they have value, they're transferrable, and they're exclusive to the holder. [paragraphs 10-13]

79.         While Bitcoin is just one type of cryptocurrency, we think any type of cryptocurrency would be property. Broadly, all cryptocurrency is digital information which can be used to make certain payments, and can be traded on cryptocurrency exchanges.[54] The holder has exclusive rights to use and trade the cryptocurrency. Those are proprietary rights which the holder can exercise over the underlying digital information. That relationship between the holder and the cryptocurrency is property.

Is bullion property?

80.         While TD 2014/26 is about Bitcoin, some points in it are relevant to determining whether other things are property. Property is a legal relationship about power over a thing. Considerations relevant to identifying proprietary rights include excludability, commercial value, and enforceability. As an aside, SMSFR 2010/1[55] at paragraph 11 gives gold bullion as an example of tangible personal property.

81.         We think bullion is property for similar reasons to why cryptocurrency is property. Bullion can be held, owned, and disposed. It has commercial value. Holding rights over bullion give the owner rights to exclude others from holding, using or selling it.

Is there a derivative financial arrangement?

82.         The phrase 'derivative financial arrangement' is explained in subsection 230-350(1). Broadly, it means a financial arrangement where its value changes as a specified variable changes:

A derivative financial arrangement is a *financial arrangement that you have where:

(a) its value changes in response to changes in a specified variable or variables; and

(b) there is no requirement for a net investment, or there is such a requirement but the net investment is smaller than would be required for other types of financial arrangement that would be expected to have a similar response to changes in market factors.

Note: Paragraph (a) - a specified variable includes an interest rate, foreign exchange rate, credit rating, index or commodity or financial instrument price.

83.         In financial usage, a 'derivative' or a 'derivative security' usually means a security which depends on the value of some underlying security. Examples include forward contracts, futures, options and swaps.[56]

84.         We don't think the arrangements entered by the trading bot meet the definition of a derivative financial arrangement.

•                    The arrangement is a series of simultaneous straight swaps of one type of cryptocurrency for another: Coin A for Coin B, Coin B for Coin C, Coin C for Coin A. They are direct asset swaps.

•                    They aren't agreements based on an external variable (like the price of an independent underlying asset, or independent factor like an interest rate).

•                    While the conversion value for each transaction depends on the price of the relevant cryptocurrency, we don't think that's enough to be a 'derivative' financial arrangement.

•                    The value of an agreement to immediately swap Coin A for Coin B won't change during the transaction, once entered.

•                    That can be contrasted with a futures or option contract involving cryptocurrency. A cryptocurrency futures or option contract might qualify as a derivative financial arrangement because its value would change depending on changes in the price of the underlying cryptocurrency.

85.         Purchase contracts for cryptocurrency or bullion (held as a long-term investment) aren't derivative financial arrangements either. They aren't agreements based on an external variable. Rather, they are contracts to directly purchase an asset. The price for the transaction depends on the relevant asset's value. But that price is fixed upon entry and won't change afterwards. Again, that can be contrasted with a futures or option contract over cryptocurrency or bullion.

Table 12 Do the extended rules in section 230-530 apply?

Table 13: is cryptocurrency, or bullion, a foreign currency?

Table 14 Is cryptocurrency, or bullion, a non-equity share?

Table 15 Are cryptocurrency or bullion commodities?

[1] According to Investopedia, a stablecoin is a class of cryptocurrencies which peg their market value to an external reference. That external reference could be a currency like the US dollar, or a commodity like gold. Investopedia (January 2022) 'Stablecoin', https://www.investopedia.com/terms/s/stablecoin.asp#:~:text=Stablecoins%20are%20cryptocurrencies%20that%20attempt,commodity%27s%20price%20such%20as%20gold accessed 31 March 2022.

[2]For example, section 230-460 is a list of miscellaneous rights or obligations, covering leases, partnership or trust interests, insurance policies, and others. See also section 230-465 (ceasing to have a financial arrangement), section 230-470 (forgiveness of commercial debts), section 230-475 (clarifying exceptions, mainly about residential care), section 230-480 (gains from franked distributions) and section 230-481 (registered emission units).

[3] This is a shorthand summary. Some of the relevant entity types are defined terms, but we won't bother describing or applying them because we have no information to suggest they're relevant on these facts.

[4] As above, this is a shorthand summary. Some of the relevant entity types are defined terms, but we won't bother describing or applying them because we have no information to suggest they're relevant on these facts.

[5] Qualifying security is a defined term, but we won't bother describing it here because it isn't relevant. The transactions covered by the arbitrage function, the cryptocurrency purchase contracts and the bullion purchase contracts are all instantaneous, so paragraph 230-455(1)(e) is met.

[6] We summarise a few defined terms here. Broadly, aggregated turnover includes include the annual turnovers of the entity, any entities connected with it, or its affiliates: section 328-115. Annual turnover is ordinary income derived in the ordinary course of carrying on a business: section 328-120. For a part year, aggregated turnover can be worked out using a reasonable estimate of what the entity's turnover would have been, had it carried on business for the whole year: subsection 328-120(5). An entity is connected with another entity if either entity controls the other, or both entities are controlled by the same third entity: subsection 328-125(1). Broadly, an entity controls a company if it has at least 40% of its income, capital, or votes: subsection 328-125(2). An entity controls a discretionary trust if it receives at least 40% of income or capital, or the trustee acts according to its directions or wishes: subsection 328-125(3). An individual or a company can be an affiliate if it acts in accordance with the other entity's directions, wishes, or in concert with it in relation to its business affairs: section 328-130.

[7] (This footnote discussed the company's turnover. This discussion has been redacted in this edited version for privacy concerns.)

[8] Section 995-1 says 'arrangement' has a very broad meaning, covering agreements, understandings, promises or undertakings, whether express or implied, and whether or not enforceable through legal proceedings.

[9] Cryptocurrency is property: it's a bundle of ownership/holding rights attaching to digital information. See generally 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?. Arguably, cryptocurrencies could be described as arrangements to the extent their recognition depends on rules or generally accepted understandings between members of a cryptocurrency community. However, a cryptocurrency holding doesn't directly create a right or obligation to give or receive a financial benefit.

[10] See Investopedia (January 2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 24 January 2022.

[11] See Investopedia (January 2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 24 January 2022.

[12] World Gold Council (2011) 'Liquidity in the global gold market' https://www.gold.org/sites/default/files/documents/gold-investment-research/liquidity_in_the_global_gold_market.pdf, accessed 10 March 2022; Investopedia (March 2021) 'Bullion' https://www.investopedia.com/terms/b/bullion.asp, accessed 9 March 2022; Investopedia (February 2022) 'How do you purchase physical gold bars?' https://www.investopedia.com/articles/investing/072316/how-do-you-purchase-physical-gold-bars.asp, accessed 9 March 2022; Investopedia (July 2021) 'Bullion Market' https://www.investopedia.com/terms/b/bullion-market.asp, accessed 9 March 2022.

[13] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=money, accessed 1 March 2022.

[14] The Macquarie Dictionary says meanings of 'currency' include "that which is current as a medium of exchange; the money in actual use" and "circulation, as of coin". Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=currency, accessed 1 March 2022.

[15] Taxation Determination TD 2014/25 Income tax: is bitcoin a 'foreign currency' for the purposes of Division 775 of the Income Tax Assessment Act 1997?

[16] See Investopedia (September 2021) 'El Salvador Becomes Bitcoin Laboratory as First Nation to Adopt it as Legal Tender', https://www.investopedia.com/el-salvador-accepts-bitcoin-as-legal-tender-5200470, accessed 1 March 2022.

[17] See Investopedia (March 2022) '10 Important Cryptocurrencies Other Than Bitcoin', https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/, accessed 8 March 2022.

[18] Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 8 March 2022; Investopedia (November 2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 8 March 2022.

[19] Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 8 March 2022; Investopedia (November 2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 8 March 2022.

[20] According to Investopedia, Dodgecoin is accepted as payment by the Dallas Mavericks, Kronos and SpaceX. See Investopedia (March 2022) '10 Important Cryptocurrencies Other Than Bitcoin', https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/, accessed 8 March 2022.

[21] See generally Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 8 March 2022; Investopedia (November 2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 8 March 2022.

[22] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=money, accessed 11 March 2022; Wikipedia (February 2022), 'Bullion', https://en.wikipedia.org/wiki/Bullion, accessed 9 March 2022; Investopedia (February 2021) 'Bullion Coins', https://www.investopedia.com/terms/b/bullion-coins.asp, accessed 9 March 2022.

[23] Wikipedia (February 2022), 'Bullion', https://en.wikipedia.org/wiki/Bullion, accessed 9 March 2022.

[24] The Perth Mint, Australia (2022) 'Gold, silver and platinum bullion' https://www.perthmint.com/bullion/information-for-bullion-buyers/, accessed 11 March 2022.

[25] Explanatory Memorandum (House of Representatives) to the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2009.

[26] The concluding words to subsection 230-45(1) say "[t]he right, obligation or combination covered by paragraph (a), (b) or (c) constitutes the financial arrangement." Paragraphs 230-45(1)(a),(b) and (c) refer to cash settlable rights to receive financial benefits, obligations to provide financial benefits, or a combination. The combination of benefits and obligations under a smart contract would most likely be the financial arrangement.

[27] Property is itself merely a description of legal relationships over things, which create rights or obligations. Property has been described as a 'bundle of rights', and the same can be said of proprietary rights over cryptocurrency. See generally 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? However, ownership rights over cryptocurrency are still different from the right to receive ownership rights over cryptocurrency. The latter might be a financial arrangement. The former isn't.

[28] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=liquidity, accessed 8 March 2022.

[29] Explanatory Memorandum (House of Representatives) to the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2009.

[30] Investopedia (November 2021) 'Cryptocurrency Exchanges: What They Are and How to Choose' https://www.investopedia.com/tech/190-cryptocurrency-exchanges-so-how-choose/, accessed 8 March 2022; Makarov, I, Schoar, A (2020) 'Trading and arbitrage in cryptocurrency markets', Journal of Financial Economics, vol 135, no 2, pp 293-319; Brauneis, A, Mestel, R, Riordan, R, Theissen E (2021) 'How to measure the liquidity of cryptocurrency markets?' Journal of Banking & Finance, vol 124.

[31] Makarov, I, Schoar, A (2020) 'Trading and arbitrage in cryptocurrency markets', Journal of Financial Economics, vol 135, no 2, pp 293-319.

[32] Brauneis, A, Mestel, R, Riordan, R, Theissen E (2021) 'How to measure the liquidity of cryptocurrency markets?' Journal of Banking & Finance, vol 124.

[33] Investopedia (July 2021) 'Liquidity of Bitcoin' https://www.investopedia.com/articles/investing/112914/liquidity-bitcoins.asp, accessed 15 March 2022.

[34] Loi H (2017) 'The Liquidity of Bitcoin' International Journal of Economics and Finance, vol 10, issue 1.

[35] Kraken (2020) 'Cryptocurrency and Bitcoin Liquidity' https://www.kraken.com/features/liquidity, accessed 8 March 2022.

[36] Investing.com (2022) (website), accessed 31 March 2022.

[37] Investopedia (March 2021) 'Bullion' https://www.investopedia.com/terms/b/bullion.asp, accessed 9 March 2022; Investopedia (February 2022) 'How do you purchase physical gold bars?' https://www.investopedia.com/articles/investing/072316/how-do-you-purchase-physical-gold-bars.asp; accessed 9 March 2022. Investopedia (July 2021) 'Bullion Market' https://www.investopedia.com/terms/b/bullion-market.asp, accessed 9 March 2022.

[38] Forbes (May 2018) '5 Questions to ask yourself before buying precious metals', https://www.forbes.com/sites/oliviergarret/2018/05/21/5-questions-to-ask-yourself-before-buying-precious-metals/?sh=19cbd1706f92, accessed 10 March 2022.

[39] World Gold Council (April 2011) 'Liquidity in the global gold market' https://www.gold.org/sites/default/files/documents/gold-investment-research/liquidity_in_the_global_gold_market.pdf accessed 10 March 2022; World Gold Council (March 2022) 'Methodology: Gold market liquidity metrics 2022 Update' https://www.gold.org/goldhub/data/trading-volumes, accessed 10 March 2022.

[40] Murray, S (2011) 'Loco London Liquidity Survey' Alchemist Vol. 63, pp 9-10, London Bullion Market Association.

[41] Investopedia (March 2021) 'How to Trade Gold in Just 4 Steps' https://www.investopedia.com/articles/investing/100915/learn-how-trade-gold-4-steps.asp,

accessed 10 March 2022.

[42] Investopedia (March 2021) 'How to Trade Gold in Just 4 Steps' https://www.investopedia.com/articles/investing/100915/learn-how-trade-gold-4-steps.asp,

accessed 10 March 2022.

[43] World Gold Council (April 2011) 'Liquidity in the global gold market' https://www.gold.org/sites/default/files/documents/gold-investment-research/liquidity_in_the_global_gold_market.pdf accessed 10 March 2022;

[44] Investopedia (January 2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 24 January 2022.

[45] Investopedia (2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 11 March 2022.

[46] Investopedia (2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 11 March 2022.

[47] Investopedia (February 2022), accessed 9 March 2022.

[48] Investopedia (May 2021) 'A Beginner's Guide to Precious Metals' https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp#citation-8, accessed 10 March 2022.

[49] Investopedia (March 2021) 'How to Trade Gold in Just 4 Steps' https://www.investopedia.com/articles/investing/100915/learn-how-trade-gold-4-steps.asp,

accessed 10 March 2022; Federal Trade Commission (April 2014) 'Prepared Statement of the Federal Trade Commission on Exploring the Perils of the Precious Metals Market' https://www.ftc.gov/system/files/documents/public_statements/302591/140430perilsofpreciousmetals.pdf, accessed 10 March 2022; World Gold Council (March 2022) 'Gold prices' https://www.gold.org/goldhub/data/gold-prices, accessed 10 March 2022.

[50] Investopedia (May 2021) 'A Beginner's Guide to Precious Metals' https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp#citation-8, accessed 10 March 2022.

[51] Explanatory Memorandum to the Tax Laws Amendment (2010 Measures No. 4) Bill 2010.

[52] Broadly, special purpose financial statements are financial statements prepared by entities (often known as 'non-reporting entities') which aren't required to demonstrate full compliance with Australian Accounting Standards: see Australian Accounting Standards Board (AASB), July 2021, Accounting Standard AASB 1053 Application of Tiers of Australian Accounting Standards at paragraph BC5. These can be contrasted with general purpose financial statementswhich are prepared by entities which are required to comply with Australian Accounting Standards. Broadly, entities covered by Australian Accounting Standards Board (AASB) Accounting Standard ASSB 1057 Application of Australian Accounting Standards are required to apply Australian Accounting Standards. AASB 1057 applies to entities required to prepare financial reports under the Corporations Act, not-for-profit reporting entities, and other entities required by law to comply with Australian Accounting Standards.

[53]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?

[54] See generally Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 9 March 2022.

[55] Self Managed Superannuation Funds Ruling SMSFR 2010/1 Self Managed Superannuation Funds: the application of subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 to the acquisition of an asset by a self managed superannuation fund from a related party.

[56] Pierson G, Brown, R, Easton S, Howard P, Pinder S (2015) Business Finance, 12^th edn,McGraw Hill Education, Sydney, page 7; Investopedia (October 2021) 'Derivative', https://www.investopedia.com/terms/d/derivative.asp, accessed 25 January 2022.

[57] The Macquarie Dictionary says meanings of 'deal' include 'a business transaction', and 'a bargain or arrangement for mutual advantage, as in commerce or politics, often a secret or underhand one'. Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=deal, accessed 14 March 2022.

[58] Australian Accounting Standards Board (AASB), July 2015, Accounting Standard AASB 102 Inventories.

[59] Australian Accounting Standards Board (AASB), July 2015, Accounting Standard AASB 102 Inventories.

[60] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=currency, accessed 14 March 2022.

[61] Taxation Determination TD 2014/25 Income tax: is bitcoin a 'foreign currency' for the purposes of Division 775 of the Income Tax Assessment Act 1997?

[62] See Investopedia (September 2021) 'El Salvador Becomes Bitcoin Laboratory as First Nation to Adopt it as Legal Tender', https://www.investopedia.com/el-salvador-accepts-bitcoin-as-legal-tender-5200470, accessed 1 March 2022.

[63] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=commodity, accessed 27 January 2022.

[64] Investopedia (January 2022), 'Commodity' https://www.investopedia.com/terms/c/commodity.asp, accessed 27 January 2022.

[65] Forbes (March 2021) 'What is Bitcoin? The Discovery of the First 'Digital Commodity'' https://www.forbes.com/sites/philippsandner/2021/03/04/what-is-bitcoin-the-discovery-of-the-first-digital-commodity/?sh=2008f62d4759 accessed 16 March 2022.

[66] Commodity Futures Trading Commission 'Bitcoin Basics' https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf, accessed 15 March 2022; Commodity Futures Trading Commission (October 2019) 'Release Number 8051-19 October 10, 2019' https://www.cftc.gov/PressRoom/PressReleases/8051-19, accessed 15 March 2022; Commodity Futures Trading Commission, 'An Introduction to Virtual Currency' https://www.cftc.gov/sites/default/files/idc/groups/public/%40customerprotection/documents/file/oceo_aivc0218.pdf, accessed 15 March 2022. See also US Securities and Exchange Commission (June 2021) 'Funds Trading in Bitcoin Futures - Investor Bulletin' https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_fundstrading, accessed 15 March 2022; Investopedia (October 2021) 'Crypto Commodity' https://www.investopedia.com/terms/c/crypto-commodity.asp, accessed 15 March 2022.

[67] Her Majesty's Revenue and Customs (2001), 'HMRC internal manual: Cryptoassets Manual: CRYPT048000 - Cryptoassets for businesses: Digital Services Tax and Cryptoasset Exchanges' https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto48000, accessed 16 March 2022.

[68] Investopedia (October 2021) 'Crypto Commodity' https://www.investopedia.com/terms/c/crypto-commodity.asp, accessed 15 March 2022.

[69] Investopedia (October 2021) 'Commodity Market' https://www.investopedia.com/terms/c/commodity-market.asp, accessed 10 March 2022.