Edited version of private advice

Authorisation Number: 1052069378645

Date of advice: 15 December 2022

Ruling

Subject: Cryptocurrency - investor v trader

Question

Were you carrying on a business of cryptocurrency trading?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

You are self-employed as a programmer and graphic designer.

You traded in cryptocurrency for a X month period during the 20YY financial year.

You invested a small amount into X different types of cryptocurrencies.

You completed less than X transactions during your trading period.

Your biggest trading period was for a X day period where you performed trades every day, with the exception of one day.

You provided us with your cryptocurrency goal.

You did not seek expert advice.

You read online articles and watched YouTube videos with tips from existing cryptocurrency traders.

You maintain records of trades (dates, time and amounts traded) with reports generated by CryptoTaxCalculator.io.

No business plan or profit/loss projections were prepared prior to commencing the activity.

You provided us with your initial trading strategy.

You decided to dispose of your cryptocurrency when the market started to show signs of losing confidence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 Part 3

Reasons for decision

Carrying on a business as a cryptocurrency trader

There are two possible scenarios as to how gains and losses from cryptocurrency trading activities can be treated for income tax purposes. These scenarios and their consequences are as follows:

1.   Business Income

In this scenario your cryptocurrency activities would be considered to constitute the carrying on of a business. Your cryptocurrency would be regarded as trading stock and any gains or losses would be included in your assessable income. Your income would be ordinary income and assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), while your expenses would be deductible under section 8-1 of the ITAA 1997.

2.   Investment Income

In this situation your cryptocurrency trading activities would be regarded as investing. Your cryptocurrency assets are considered capital gains tax (CGT) assets. Any gains resulting from the disposal of cryptocurrency would be income as a capital gain. Any losses sustained on the disposal of your cryptocurrency would be a capital loss. Your income would be statutory income and assessable under section 102-5 of the ITAA 1997, while a loss would be deductible under section 102-10 of the ITAA 1997.

To determine which of these treatments applies to your situation it is necessary to make a determination of whether or not your cryptocurrency activities amount to the carrying on of a business.

Whether or not a person is carrying on a business is a question of fact. The determination of whether or not a business is being carried on is generally a process of weighing up all the relevant indicators within the context of your own situation. No one indicator determines whether or not a business is being carried on.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? lists the following indicators as relevant in determining if a business is being carried on:

• whether the activity has a significant commercial purpose or character;
• whether the taxpayer has more than an intention to engage in business;
• whether a taxpayer has a purpose of profit as well as prospect of profit from the activity;
• whether there is repetition and regularity of the activity;
• whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;
• whether the activity is planned, organised and carried out in a business-like manner such that it is directed at 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 a sporting activity.

Application to your situation

For the year ended 30 June 20YY, you were not carrying on a business of cryptocurrency trading.

The factors or indicators that give the overall impression that you were not carrying on a business of cryptocurrency trading for the year ended 30 June 20YY are as follows:

1. Your activity lacks significant commercial purpose.
2. You did not have a business plan.
3. You traded for less than X months, with majority of your transactions occurring over a X day period.
4. The amount of initial capital that you invested into cryptocurrency was low. A trader would have made a bigger initial investment.
5. Your cryptocurrency transactions do not show the required repetition regularity and scale required to be considered to be a business.

As a result, for the year ended 30 June 20YY, your cryptocurrency buying and selling activity is indicative of a cryptocurrency investor and should be returned on capital account.