Edited version of private advice

Authorisation Number: 1052126535535

Date of advice: 8 June 2023

Ruling

Subject: Cryptocurrency trading

Question

Are you classified as a cryptocurrency trader for the 2021-22 financial year for income tax purposes?

Answer

Yes.

This ruling applies for the following period:

Period Ended 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You made a significant number of buy and sell transactions for the relevant financial year.

You kept electronic records of trades and analysis in Excel spreadsheets and Word documents. These files were stored in a specific trading folder in your computer files.

You had multiple buy and sell transactions in each month for the entire relevant financial year. They were regular and repetitive.

You followed your trading strategy with the intent of short-term income and profit.

You invested a substantial sum of capital to be able to trade. You did not borrow any finds or draw on any line of credit to obtain this capital.

You provided details of your income and losses.

You provided us with details on the number of hours per week that you spent on research and analysis.

You allocated a minimum of a specified number of hours every day, at the same time each day to complete analysis, read market reviews and recommendations and to set up your watchlist according to this.

You regularly checked watchlists and market feeds throughout the day to reassess entry and exit points for planned trades.

You had fulltime employment not related to the financial investing and cryptocurrency industry.

You would spend up to a specified number of hours each week conducting the trades.

You used a personal account in your name to deposit and withdraw funds.

You do not have qualifications and have not completed any training courses.

You have paid subscriptions to obtain professional assistance from other traders within the industry.

You have improved your knowledge and skills in cryptocurrency through various online sources.

You use crypto-currency software to keep records of your transactions and accounting records.

You use various internet sources and online charting to analyse potential trading set-ups and entry/exit methods.

You have a separate office set up in your home for the purpose of trading.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 70-80

Reasons for decision

Determining if you are a cryptocurrency trader is the same as determining whether your activities are considered to be carrying on a business for tax purposes.

Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? lists the factors that are considered important in determining if a business activity is being carried on 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.

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.

Applying the relevant indicators to your circumstances

Intention to engage in business and prospect of profit

You had an intention to engage in your activities and have completed crypto-currency purchases and sales according to a specific trading strategy.

You conducted cryptocurrency trades with the intention of short-term income and profit. You use a trading strategy and use information from various resources to assist you in your cryptocurrency trading decisions.

Repetition and regularity of the activity

One of the key factors to consider whether a business of cryptocurrency trading is being carried on is the repetition and regularity of the trading activities. The higher the volume of trades, the more likely it is that a business of cryptocurrency trading is being carried on.

In your case, you had a specified number of trades over the financial year, completed on a regular basis each month for the entire financial year. You dedicated a specified number of hours at the same time each day to conduct research and analysis to set up watchlists according to a specific trading strategy and continually watched the market feed throughout the day with your trading activities totalling a specified number of hours per week. This shows repetition and routine to your trading activities.

Size, scale, and permanency of the activity

Cryptocurrency trading that is being conducted on a small scale is more likely to be considered investing, however a cryptocurrency trader could trade small amounts with high regularity, while an investor could have several million dollars at stake.

You had an average of a specified amount invested into your trading activities with is a substantial amount to begin trading activities with the intent of profit.

Organisation in a business-like manner

Activities are more likely to amount to the carrying on of a business where they are carried out in a systematic and organised manner. This usually involves some form of forward planning such as contingencies and market fluctuations, setting profit targets, budgets, maintaining operations on a consistent basis, retaining, and pursuing profitable activities, discontinuing unprofitable activities, and keeping appropriate business records.

The following indicates that you conduct your trades in a business-like manner:

• You have a dedicated office space to complete your trades
• You keep records of analysis and trades in Microsoft Excel spreadsheets and Microsoft Word documents saved into a trading specific folder
• You have a share trading strategy in place
• You have variety in the cryptocurrency that you trade.

Conclusion

After weighing up of all the relevant indicators within the context of your individual circumstances, it is considered that you were carrying on a business of cryptocurrency trading for the relevant period. Consequently, your income is assessable as ordinary income under section 6-5 of the ITAA 1997, while your losses are deductable under section 8-1 of the ITAA 1997.