Edited version of private advice

Authorisation Number: 1052244928336

Date of advice: 24 April 2024

Ruling

Subject: Am I in business - cryptocurrency

Question

Are the proceeds from your cryptocurrency trading assessable as business income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, as your trading activity through the 2020-21 to 2022-23 financial years satisfies the indicators of business listed in paragraph 13 of Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production. It had significant commercial purpose or character, you had more than an intention to engage in business, you had the purpose and prospect of profit, there was repetition and regularity in your activity, you conducted your trading in a businesslike manner that was similar to that of other businesses in the field, and the size, scale and permanency of your activity was indicative of a business. Your income from your crypto currency trading is assessable under section 6-5 of the ITAA 1997, and expenses deductible are under section 8-1 of the ITAA 1997.

This ruling applies for the following periods:

Year ended 30 June 2021

Year ended 30 June 2022

Year ended 30 June 2023

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

You commenced and continued trading cryptocurrencies throughout the relevant period, reducing your trading activity in the final financial year, and have now discontinued your trading activity.

You intended to carry on a business and make a profit with your cryptocurrency trading.

Having spent several months privately researching the prospect you believed you could make a profit trading in cryptocurrencies as the trading fees were low and you could develop software that could monitor markets and execute trading activity in real time.

You had no prior experience trading cryptocurrencies.

You have a Bachelor of Computer Science with Honours.

Your research into this activity included a trial run of the software you developed for cryptocurrency trading.

You developed software that was able to dynamically respond to changing market conditions, taking multiple factors into account to make real time calculations that allowed you to determine whether and when to trade, and the amounts to invest in the trades you were making.

Your initial capital investment of was sourced from your own private funds.

In the time you were trading cryptocurrencies you were engaged on a full-time basis in this activity.

You made over XXX transactions a year through the period you were trading crypto currencies.

You traded cryptocurrencies through the Binance and Coinbase trading platforms.

Your business plan comprised use of your programming skills to develop software that would identify trading opportunities, protect and increase your capital, and make trading transactions.

To manage risks you relied on the ability of the software you had developed to gauge market conditions and dynamically adapt investment activity to suit these market conditions.

You developed reporting software that provided real time reports on your trading positions. This allowed you to monitor your trading activity and adjust or improve your strategy and software as necessary.

You maintained a hard limit on the maximum investment amount.

The crypto currencies you traded mainly comprised XXX and XXX, but also included transactions for smaller in other token currencies such as XXXXXXXXXXXXXXXX and XXX.

You paid fees for your trading through the financial years you were engaged in your trading activity.

You discussed the tax implications of your cryptocurrency trading activity with your accountant so you could comply with you taxation obligations.

You used the Binance exchange platform to keep a record of you trading activity, transaction by transaction. This record included both your automatic and manually generated trading transactions.

The turnover in your first 2 financial years of trading averaged over $XXX per year. You made a loss in each financial year you were trading.

You persisted in your cryptocurrency trading as long as you believed that you would make a profit and did not consider this activity a hobby.

You had no other salary or wage income through the period you were trading cryptocurrencies.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1