Edited version of private advice

Authorisation Number: 1052197366393

Date of advice: 27 November 2023

Ruling

Subject: Am I in business - cryptocurrency

Question

Is the income that you have received from the cryptocurrency transactions assessable as business income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ended 30^th June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You started in cryptocurrency trading/mining in 20XX during the Covid-19 lockdown occurred then stopped. You started trading/mining again in the 2022-23 financial year.

You recommenced this activity as the cryptocurrency market was starting to 'boom' and you wanted to test the market. You also intended to make some additional income from the activity as you were unemployed at the time. Also, that any profit made at the time or in the future was incidental and not the main intention.

To complete the cryptocurrency mining you purchased additional graphic cards in the previous year but were used in the 2022-23 financial year. You used your savings to purchase the cards.

Using the graphic cards, you mined RVN within the 2022-23 financial year. You had a one exchange transaction in which the type of cryptocurrency was changed from RVN to SHIB. This transaction was able to be completed as there was RVN carried over from the 2021-22 financial year. There was also a total loss.

You completed your mining on overseas servers. From this mining process less than 40 mining transactions occurred.

During the time you were active in cryptocurrency you spent less than standard workday undertaken research or completing mining/exchange transactions. This was broken down to around 1 hour per day you were actively mining/trading.

To keep record of your exchange and mining transactions you used an application which maintained record of transactions and generated reports for tax return completion. As cryptocurrency transactions are recorded in a public assessable blockchain the application collected this information and auto generated a report that contained profit and loss in Australian dollars.

Your strategy was to buy SHIB at low prices hoping that there was a sharp increase in the market value. However, this did not occur, and the value dropped dramatically. You did not have a system in place to preserve capital or limit loss.

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 15-20

Reasons for decision

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? provides the Commissioner's view on the meaning of carrying on a business for primary production and outlines a number of factors developed by courts and tribunals that they have found to be indicative of when a taxpayer is carrying on a business of primary production. These indicators are also applicable to non-primary production activities:

(a) the existence of a profit-making and commercial purpose (Walsh J in Thomas v Federal Commissioner of Taxation (1972) ATR 165; 72 ATC 4094 held that the 'existence of a profit-making and commercial purpose' should be considered in light of the other indicia, as well as any knowledge, previous experience or skill of the taxpayer in the relevant activity);

(b) the taxpayer has more than a mere intention to engage in business;

(c) the existence of an intention to make a profit or a genuine belief that a profit will be made;

(d) the size and scale of the activities;

(e) the repetition and regularity of the activities;

(f) the activities are carried out in a systematic and organised (i.e. businesslike) manner usual for that type of business;

(g) the size, scale and permanency of the activity; and

(h) can the activity be 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 (paragraph 25 of TR 97/11).

Whether a business is being carried on for income tax purposes is a question of fact and degree, to be determined objectively on the specific circumstances of the case, weighing the various indicators outlined above against one another (paragraph 16 of TR 97/11).

Upon looking at the above factors: intention, repetition and regularity are considered to be important indicators on whether or not a business is being carried on, with the size and scale of the activity being supporting factors.

Reviewing the information that you have provided it can be considered that you were not in business of cryptocurrency trading/mining. The intention of starting the undertaking the cryptocurrency trading/mining was to make additional income while unemployed with no aim of making a profit other than incidental profit.

Also, you engaged with the activity for less than a month with a total time spent less than a standard working day before leaving the activity for the 2022-23 financial year. Within the 2022-23 financial year there was one exchange transaction and less than 40 mining transactions which does not indicate size and scale as well as repetition and regularity.

After considering the above factors and your specific circumstances, it is considered that you were not carrying on a business as a cryptocurrency trader during the 2022-23 financial year. Your trading activities were not repetitive or regular. You were regarded more as an investor rather than a trader. As you were not in the business of cryptocurrency trading, the income is not assessable under section 6-5 of the ITAA 1997. The shares you held at the end of the relevant income year were not trading stock for the purposes of Division 70 of the ITAA 1997. As any losses were capital in nature they cannot be claimed as a deduction under section 8-1 of the ITAA 1997. They are capital losses and can be offset against capital gains made that year and in future years.