Edited version of private advice

Authorisation Number: 1052280883089

Date of advice: 5 August 2024

Ruling

Subject: Employee benefits - assessable income - crypto assets

Question 1

Are the crypto assets you received from your employer included in your assessable income?

Answer

No.

Question 2

Is the acquisition date of the crypto assets the date they were transferred to your digital wallet by your employer?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

During the relevant period, you worked remotely from Australia for a foreign employer.

You received crypto assets from your employer which were transferred into a digital wallet owned by you.

You received the crypto assets in addition to your normal salary and wages and they were given to you in recognition for your talent and services to the organisation.

The terms and conditions relating to the payment included:

•         your employer was remitting the crypto assets to you as an 'incentive'

•         the crypto assets were to be locked for a period of XX months

•         any incentive payments, benefits or other special bonuses, regardless of their nature and even if paid repeatedly, always represent voluntary benefits without recognising any legal obligation of the employer to do so.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1997 section subsection 108-5(1)

Income Tax Assessment Act 1997 section 109-5

Reasons for decision

Income and benefits derived from employment services rendered

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes income according to ordinary concepts (ordinary income) derived from all sources, whether in or out of Australia, during the income year.

In working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

Taxation Determination TD 2017/26 provides that benefits (in the form of money or money's worth) that are received for, or in respect of, services provided as an employee, or, similarly, payments which have a sufficient connection with employment, will be characterised as remuneration and therefore ordinary income.

Further, section 15-2 of the ITAA 1997 provides that assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you. This is so whether the things were provided in money or in any other form. However, an amount will not be assessable under section 15-2 if the amount is assessable as ordinary income under section 6-5 of the ITAA 1997.

In your case, you acquired crypto assets from your employer as an incentive payment. Taking into account the circumstances surrounding the payment, it is considered that the crypto assets were provided to you in respect of your employment. Therefore, the value of the crypto assets is characterised as remuneration and therefore ordinary income for the purposes of section 6-5 of the ITAA 1997.

Provision of crypto assets in respect of employment services rendered

Crypto assets are a digital representation of value that you can transfer, store, or trade electronically. These assets are property and therefore capital gains tax (CGT) assets for the purposes of subsection 108-5(1) of the ITAA 1997.

Taxation Determination TD 2014/28 (TD 2014/28) discusses the taxation consequences of an employer providing bitcoin to an employee in respect of employment services rendered. The same principles can be applied to other crypto assets.

TD 2014/28 explains that as a crypto asset is considered to be property for tax purposes (and not money), a crypto asset satisfies the definition of a 'non-cash benefit' and it is excluded from PAYG withholding. This exclusion from PAYG withholding means that a crypto asset is not 'salary or wages' within the definition of that term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) and accordingly is not 'salary or wages' for the purposes of the exclusion in the definition of 'fringe benefit' in the same subsection.

Accordingly, the provision of a crypto asset by an employer to an employee in respect of the employee's employment will be a property fringe benefit for the purposes of subsection 136(1) of the FBTAA 1986.

Income derived by a taxpayer by way of the provision of a fringe benefit is not assessable and is not exempt income of the taxpayer under subsection 23L(1) of the ITAA 1936 (section 23L deals with certain benefits in the nature of income that are not assessable).

Therefore, the crypto assets you received from your employer are not included in your assessable income under subsection 23L(1) of the ITAA 1936.

It is also noted that the employer of the employee in these circumstances is liable to pay FBT on the taxable value of the property fringe benefit. This is so, regardless of whether the employer is an Australian resident or a foreign resident.

Acquisition date of crypto assets

Section 109-5 of the ITAA 1997 provides that in general, you acquire a CGT asset when you become its owner. In this case, the time when you acquire the asset is when you become its owner.

In your case, the crypto assets you received from your employer were placed in a digital wallet you owned. Consequently, even though the crypto assets were 'locked' for a period of time, you were still the legal owner of the crypto. Therefore, the acquisition date of the crypto assets is the date they were transferred to your digital wallet by your employer.