Edited version of private advice

Authorisation Number: 1052108328158

Date of advice: 14 April 2023

Ruling

Subject: Cryptocurrency investment gains

Question

Are any gains made by the charity from its investment of cryptocurrency donated to it exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The organisation is a charity registered with the Australian Charities and Not-for-profits Commission (ACNC).

The organisation is endorsed by the ATO as exempt from income tax.

A donor donated cryptocurrency to the organisation.

Upon donation, ownership of the cryptocurrency changed from the donor to the organisation.

The organisation holds the cryptocurrency for investment purposes.

The organisation will sell portions of the cryptocurrency in the 20XX income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 102-5(1)

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Subsection 104-10(1)

Income Tax Assessment Act 1997 Subsection 104-10(2)

Income Tax Assessment Act 1997 paragraph 108-5(1)(a)

Income Tax Assessment Act 1997 Subsection 102-5(1)

Income Tax Assessment Act 1997 Section 11-5

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-5

Income Tax Assessment Act 1997 Section 50-52

Income Tax Assessment Act 1997 Section 50-105

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997).

Capital gains

A taxpayer's assessable income includes any net capital gain for the income year.

Section 102-20 states that a capital gain or loss is made only if a CGT event happens.

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? explains that bitcoin is a CGT asset. The principles in this determination can be used on all cryptocurrencies and is not limited to bitcoin.

The disposal of cryptocurrency that is not part of a business or commercial transaction will give rise to CGT event A1 under subsection 104-10(1).

You dispose of a CGT asset if a change of ownership occurs from you to another entity.

Tax exempt charity

A not-for-profit organisation must pay tax on its assessable income unless it qualifies for an exemption.

If a not-for-profit organisation is a charity, it must be registered with the Australian Charities and Not-for-profits Commission (ACNC) and endorsed by the Australian Taxation Office (ATO) to access the income tax exemption.

If a charity qualifies for and obtains an income tax exemption it will not have to pay any income tax or lodge tax returns (unless the ATO specifically asks it to lodge tax returns).

Application to the organisation's circumstances

As detailed in TD 2014/26, the cryptocurrency held by the organisation is a CGT asset.

CGT event A1 will happen on the sale of the cryptocurrency held by the organisation as an investment.

Any gain made on the sale of the cryptocurrency will be a capital gain for the organisation.

As the organisation is a charity registered with the ACNC and endorsed by the ATO for income tax exemption any gains made on the sale of cryptocurrency by the organisation are exempt from tax.