Edited version of private advice

Authorisation Number: 1052014880581

Date of advice: 17 August 2022

Ruling

Subject: Crypto mining and digital currency

Question 1

Are you carrying on a business of mining digital assets?

Answer

Yes.

Question 2

Do you have to pay GST on the sales of digital currency that you have earnt from providing services to an overseas cryptocurrency mining pool?

Answer

No,digital currency sales are input taxed (financial supplies) which means you don't pay GST on these sales.

Question 3

Are you entitled to claim GST credits for expenses that you incur in providing services to an overseas cryptocurrency mining pool?

Answer

Yes,you are able to claim GST credits for the GST included in your creditable acquisitions in relation to providing services to an overseas cryptocurrency mining pool provided you hold a valid tax invoice.

Question 4

Do you have to pay GST on the sale of digital currency that you have earnt by staking cryptocurrency with an Australian cryptocurrency company?

Answer

No, digital currency sales are input taxed (financial supplies) which means you don't pay GST on these sales.

Question 5

Do you have to pay GST on the sale of digital currency that you have earnt by staking cryptocurrency with an overseas cryptocurrency staking company?

Answer

No, digital currency sales are input taxed (financial supplies) which means you don't pay GST on these sales.

This ruling applies for the following period:

Year ending 30 June 20YY

Relevant facts and circumstances

•                     You are registered for GST, since DD MM YYYY.

•                     You provide crypto asset mining services to a mining pool, which is not a resident of Australia and is located outside of Australia.

•                     You own the hardware used to offer computing power to the mining pool. The mining pool you provide services to provides XXXX consensus to the XXXX XXXX in exchange for rewards of XXXX (and sometimes various other cryptocurrencies). You are rewarded with a portion of this XXXX for your contribution to the mining pool which is deposited into your Australian exchange wallet.

•                     You provide Proof-of-Stake (POS) validator services by staking cryptocurrency for the XXXX XXXX.

•                     You provide the POS validator services by staking an amount of XXXX for a specific amount of time in a centralised exchange cryptocurrency wallet located in Australia or previously an overseas entity cryptocurrency wallet.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Regulations 2019 Section 40-5.09

Reasons for decision

Detailed reasoning

Question 1

Carrying on a business

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

The case of Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 stated that whether an activity amounts to carrying on business for taxation purposes is a question of fact.

There is no exhaustive or determinative definition which can be applied to determine this matter. Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, however, provides that the test for determining whether a business is being carried on is both subjective, which considers the individual's purpose at the relevant time, and objective, which considers the nature and extent of the activities undertaken.

Taxation Ruling TR 97/11 Income Tax: Am I carrying on a business of primary production? (TR 97/11) And Taxation Ruling TR 2005/1 Income Tax: carrying on a business as a professional artist provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The factors are:

•                     whether the activity has a significant commercial purpose or character;

•                     whether the taxpayer has more than just an intention to engage in business;

•                     whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

•                     whether there is regularity and repetition of the activity;

•                     whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business;

•                     whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit the

•                     size, scale and permanency of the activity; and

•                     whether the activity is better described as a hobby, a form of recreation or sporting activity.

No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the overall impression.

Application to your circumstances

After considering the facts and circumstances of your application, we consider that you have the necessary characteristics of a business for taxation purposes for the following reasons:

Purpose of profit

Your business operations have the purpose of profit and the prospect of profit.

Repetition and regularity

Your income producing activity requires sufficient repetition of actions in a regular manner to ensure that income is produced. Income is also generated on a regular and consistent basis which is an indication that commercial activity is being carried out.

Size and scale

The size and scale of the operation is large enough to indicate that commercial activity is being carried on and you have a permanent place of operation where the activity is carried out.

Organised and carried on in a business-like manner

Your activity is organised and carried out in a business-like manner. You have set times you carry out maintenance and regularly dedicate time to designing and 3D printing rigs with the intention of expanding income producing activities. You manage the income to ensure expense and loan repayments are regularly met and you keep detailed financial records to track profits and losses. You also have a business plan.

Same kind

Your income producing activity is carried on in a similar manner and is of similar size and scale other activities in your industry that would be considered a business.

Hobby or form of recreation

Your income producing activity is not better described as a hobby.

Conclusion

Your activity demonstrates a number of the relevant business indicators as set out in TR 97/11. The overall impression of the activity is that a business of mining digital assets is being carried on.

Question 2

You are liable for GST on any taxable supplies that you make. You make a taxable supply under section 9-5 theGST Act if you:

a)            make a supply for consideration; and

b)            the supply is made in the course or furtherance of an enterprise that you carry on; and

c)            the supply is connected with the indirect tax zone; and

d)            are registered or are required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

For supplies or payments made on or after 1 July 2017, the GST treatment of digital currency is aligned with that of money. As per subsection 9-10(4) of the GST Act, the effect is that a supply of digital currency is not treated as a supply unless it is provided as consideration for another supply of money or digital currency. If there is such a supply, it will be treated as a financial supply.

Goods and service Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions paragraph 7 states:

7. The GST Act provides that financial supplies are input taxed. Not only financial institutions make financial supplies. You may make financial supplies in the course of carrying on your enterprise if you provide, acquire or dispose of an interest listed in the GST regulations in circumstances that satisfy the requirements for a financial supply under those regulations. No GST is payable on input taxed supplies.

Enterprise

The term 'enterprise' is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or a series of activities done:

In the form of a business (paragraph 9-20(1)(a))

The phase 'carry on' in the context of an enterprise incudes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on and enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an ABN.

Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999, provides that the discussion on MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

Paragraph 178 of MT 2006/1 references TR 97/11 in discussion of the main indicators of carrying on a business.

Consequentially, we consider that your activities related to providing mining services to an overseas mining pool, aligned with the reasoning provided in Question 1, to be in the form of a business and thus amount to an enterprise you carry on.

Financial supply regulations

Subsection 40-5.09(1) of A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) provides that the provision, acquisition or disposal of an interest mentioned in the table in subsection (3) is a financial supply if:

e)            the provision, acquisition or disposal is:

                                             i.                for consideration; and

                                            ii.                in the course or furtherance of an enterprise; and

                                           iii.                connected with Australia; and

f)             the supplier is:

                                             i.                registered or required to be registered; and

                                            ii.                a financial supply provider in relation to supply of the interest.

Section 40-5.06 of the GST Regulations provides that an entity is the financial supply provider of an interest if the interest was the entity's property immediately before the supply.

Item 9 in table in subsection 40-5.09(3) of the GST Regulations states an interest is an interest in or under:

9. Australian currency, the currency of a foreign currency, digital currency or an agreement to buy or sell any of these 3 things.

Your disposal of digital currency is for consideration ($AUD), in the course or furtherance of your enterprise and connected with Australia. You are registered for GST and the digital currency (interest) was your property immediately before the supply.

Consequently, you satisfy the requirements for a financial supply under the GST Regulations when you dispose of digital currency. Therefore, your digital currency sales are input taxed (financial supplies) which means you don't pay GST on these sales and generally, you can't claim GST included in the price you pay for anything you purchase to make these sales.

Additional information

The sale of the digital currency is a separate supply to your supply of providing services to an overseas cryptocurrency mining pool.

Question 3

Under section 11-20 of the GST Act you are entitled to the GST credit for any creditable acquisition that you

make.

You make a creditable acquisition under section 11-5 of the GST Act if:

g)            you acquire anything solely or partly for a creditable purpose; and

h)            the supply of the thing to you is a taxable supply; and

i)             you provide, or are liable to provide, consideration for the supply; and

j)             you are registered or required to be registered for GST.

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise and the acquisition does not relate to making supplies that would be input taxed or of a private or domestic nature.

The expenses that you incur in providing mining services to an overseas cryptocurrency mining pool do not relate to making supplies that would be input taxed or of a private or domestic nature. Therefore, the acquisitions are made for a creditable purpose as they are acquired in carrying on your enterprise. You are currently registered for GST.

As a result, you will be making creditable acquisitions if the expenses you incur in providing mining services to an overseas mining pool, are a taxable supply to you. Where the expenses you incur in providing the mining services to the overseas mining pool is a taxable supply to you, all of the requirements for a creditable acquisition under section 11-20 of the GST Act will be satisfied, giving rise to an entitlement to a GST credit.

You will be able to claim GST credits for the GST included in your creditable acquisitions provided you hold a valid tax invoice.

Question 4

As detailed in Question 2, digital currency sales are input taxed (financial supplies) which means you don't pay GST on these sales and generally, you can't claim GST included in the price you pay for anything you purchase to make these sales.

Additional information

The sale of the digital currency is a separate supply to your supply of staking cryptocurrency with an Australian cryptocurrency company.

Question 5

As detailed in Question 2, digital currency sales are input taxed (financial supplies) which means you don't pay GST on these sales and generally, you can't claim GST included in the price you pay for anything you purchase to make these sales.

Additional information

The sale of the digital currency is a separate supply to your supply of staking cryptocurrency with an overseas cryptocurrency staking company.