Edited version of private advice

Authorisation Number: 1052409893863

Date of advice: 17 June 2025

Ruling

Subject: Cryptocurrency

Question 1

Are you a temporary resident of Australia for income tax purposes?

Answer 1

Yes.

Question 2

If the answer to question 1 is yes, are you subject to Capital Gains Tax as a temporary resident?

Answer 2

No.

Question 3

Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 for the purchase of in-game content?

Answer 3

No.

Question 4

Is NFT received from a raffle considered a personal use asset as defined under subsection 108-20(2) of the Income Tax Assessment Act 1997?

Answer 4

Not applicable as you are a foreign resident, and the NFT are not a direct or indirect interest in Australian real property.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

X XXX 20XX

Relevant facts and circumstances

You are on a XXX Visa

Around XXX 20XX, you started playing a video game.

You play the video game daily to complete check-in missions which results in you receiving in-game rewards of crypto tokens.

The video game also rewards players based on their in-game ranking and final allocation. This is achieved by accruing enough in-game points to be eligible to earn rewards.

Players may also earn rewards via playing in game missions which require the use of in-game currency. This in-game currency can only be obtained by earning it in-game or, by purchasing it with crypto currency.

The crypto tokens were listed after you commenced playing the game and are now actively traded on global centralised exchanges (CEXs) and can also be purchased on decentralised exchanges (DEX), using both crypto and fiat currencies.

From approximately XXX to XXX, you have spent $XXXX on in-game purchases. These purchases improve your character which increases your potential rewards.

Other in-game items you have been purchased.

You have also spent over $XXXX USD to purchase the crypto currency tokens after they were listed on Bitget which you then applied for in-game purposes.

You primarily play the game to earn an in-game profit although you also view playing the game as an investment opportunity.

You created multiple accounts to maximise your rewards.

You entered an in- game raffle whereby you used crypto currency to purchase raffle tickets. You won non-fungible tokens (NFTs) in the raffle.

The owning of NFTs improves your characters performance in the game, increasing your chances of receiving further rewards.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 subsection 108-20(2)

Income Tax Assessment Act 1997 section 768-915

Income Tax Assessment Act 1997 section 768-910

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Question 1:

Are you a temporary resident of Australia for income tax purposes?

Summary

You are a temporary resident as you meet all the conditions under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed Reasoning

Under subsection 995-1(1) of the ITAA 1997 you are a temporary resident if you:

•                     hold a temporary visa granted under the Migration Act 1958

•                     are not an Australian resident within the meaning of the Social Security Act 1991, and

•                     do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder.

In your case, you are not an Australian resident within the meaning of the Social Security Act 1991 as you are not an Australian citizen, the holder of a permanent visa, or a protected special category visa holder.<

Application to your circumstances

You currently hold a XXX Visa (subclass XXX) under the Migration Act 1958. This excludes you from meeting the definition of an 'Australian resident' under the Social Security Act 1991.

Therefore, you are a Temporary resident of Australia for taxation purposes.

Question 2:

If the answer to question 1 is yes, are you subject to Capital Gains Tax as a temporary resident??<

Summary

As you are a temporary resident, any capital gain or loss you make from a CGT event is disregarded if the relevant asset is not a direct or indirect interest in Australian real property.

Detailed Reasoning

Section 768-915 of the ITAA 1997 provides that the capital gain or loss you make from a CGT event is disregarded if you are a temporary resident of Australia unless the relevant CGT asset is a direct or indirect interest in Australian real property.

Crypto assets are CGT assets but the crypto assets you hold do not represent a direct or indirect interest in Australian real property.

Application to your circumstances

As you are a temporary resident of Australia for taxation purposes, and the crypto reward tokens are not a direct or indirect interest in Australian real property you can disregard any capital gain or capital loss in respect of a CGT event that happens in relation to your cryptocurrency assets.

Questions 3:

Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 for the purchase of in-game content?

Summary

Section 8-1 of the ITAA 1997 allows a deduction for expenditure to the extent that it is incurred in the gaining or producing of assessable income, or in the carrying on of a business to gain or produce assessable income except to the extent that the expenditure is private, domestic or capital in nature.

Although the purchase of in-game content increases your chances of obtaining tokens, your purchases are primarily an outgoing into the game itself which is for hobby or entertainment purposes, the tokens being secondary (or a consequence of) playing it.

Therefore, it is not established that there is a sufficient nexus between your expenditure on in-game content and the production of your assessable income. Further, even if a nexus could be found, the purchases of in-game content would be considered private in nature.

Therefore, no deduction is allowable for the in-game purchases you have made.

Detailed reasoning

Ordinary income

Subsection 6-5(1) of the ITAA 1997 states that your assessable income includes income according to ordinary concepts, which is called ordinary income.

In Federal Commissioner of Taxation v. The Myer Emporium Ltd (1987) 163 CLR 199 (Myer), the High Court said:

The periodicity, regularity and recurrence of a receipt has been considered to be a hallmark of its character as income in accordance with the ordinary concepts and usages of mankind.

Section 768-910 of the ITAA 1997 provides that the assessable income of a temporary resident of Australia includes only income derived in Australia during the income year.

Taxation Determination 2014/26 Income tax: is bitcoin a 'CGT asset' for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (TR 2014/26) sets out the Commissioners view's that bitcoin is a CGT asset and falls under 'any kind of property' within subsection 108-5(1) of the ITAA 1997.

The principles in this determination are not limited to the crypto asset bitcoin and apply to other cryptocurrencies.

Hobby v Business

Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11 provides a guide as to the indicators that are relevant to determining whether or not a person is carrying on a business of primary production.

TR 97/11 identifies the following indicators for consideration to determine whether a taxpayer is carrying on a business:

•                     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 repetition and regularity of the activity

•                     whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business

•                     whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at 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 a sporting activity.

The indicators set out in TR 97/11 are general in nature.

In determining whether a taxpayer is carrying on a business, no one indicator will be decisive. The indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the large or general impression gained from looking at all the indicators and whether these indicators provide the operations with a commercial flavour.

Conversely, the pursuit of a hobby is not the carrying on of a business for taxation purposes. Money derived from the pursuit of a hobby is not regarded as income and therefore is not assessable. Therefore, expenses incurred in relation to the hobby activity are not allowable deductions (paragraph 86, TR 97/11).

Deductible costs

Section 8-1 of the ITAA 1997 allows a deduction for expenditure to the extent that it is incurred in the gaining or producing of assessable income, or in the carrying on of a business to gain or produce assessable income except to the extent that the expenditure is private, domestic or capital in nature.

The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 determined it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

It is not enough to show a perceived connection, general link, or causal connection between the expenditure and the production of your income. The expenditure must have a close connection to the performance of the duties and activities through which you earn your income.

In determining what the character of 'expenditure' is, the majority of the Full Federal Court stated in Commissioner of Taxation v Payne (1999) 90 FCR 435:

'The expenditure must be incidental and relevant to the derivation of assessable income... in addition, its essential character must be that of a business expense.' [emphasis added]

Where there is a sufficient link between the expenditure and the activity through which you earn an income, you still are unable to claim a deduction should the expenditure be private or domestic in nature.

Paragraph 46 of TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) explains that the terms 'private or domestic' are not defined in the Act but have the ordinary meanings of 'personal' and 'relating to the home, household or household affairs' respectively.

'Personal' is defined within the Macquarie Dictionary as 'of or relating to a particular person; individual; private'.

In Federal Commissioner of Taxation v Hatchett (1971) 125 CLR 494, Menzies J said:

It must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature. In most cases the categories would seem to be exclusive.

Application to your circumstances:

Are the in-game rewards ordinary income?

You are a foreign resident who currently holds a XXX Visa (subclass XXX) under the Migration Act 1958 which entitles you to be in Australia.

While you state thatyour primary purpose of playing the game is to make a profit, and you consider it an investment opportunity with the aim of generating returns, you have not demonstrated:

•                     A system for playing the game which generates your assessable income

•                     The amount of time dedicated to the game compared to you other income earning activities

Further, given the very low value of the tokens and the random generation of them via game play, they do not demonstrate the characteristics of ordinary income.

Based on the information you have provided, and the fact you have only been playing the game since XXX 20XX, it is considered that your primary purpose of engaging in the game is hobby or entertainment rather that the gaining or producing of assessable income.

Therefore, any rewards you receive from playing the game will not be considered part of your ordinary income for income tax purposes.

Can you claim a deduction for your expenditure in the video game?

Your primary expenditure is on in-game content which is related to improving your in-game character with the potential to increase your chances of obtaining rewards through increasing your in-game ranking

Although these purchases increase the chances of obtaining crypto tokens, your expenditure on in-game content is not 'in the course of gaining or producing assessable income' insofar as being 'in connection with' or 'for the purpose of' gaining assessable income.

While the game provides players with rewards, this does not change the fact that the primary purpose of the game is a video game for entertainment purposes. The purchasing of in-game content is part of allowing players to fully participate in the game itself, the consequence being a player may receive rewards

Further, where an item is for an entertainment purpose, more likely than not it will retain a personal or private nature. This aligns with the Commissioners view in TR 2020/1 whereby the term 'personal' retains its ordinary meaning, that is, 'of or relating to a particular person'.

In your case, although you may receive rewards for playing the game (such as through daily missions or ranking highly enough), as the nature of expenditure is linked to a hobby or entertainment purpose, the expenditure is private in nature in that it relates to your personal or private capacity.

Therefore, you are not entitled to a deduction for the expenditure on in-game content.

Question 4

Are the NFT which were won as a prize from an in-game raffle considered a personal use asset as defined under subsection 108-20(2) of the Income Tax Assessment Act 1997?

Summary:

There is no need to answer this question as you are a foreign resident, and the NFT do not represent a direct or indirect interest in Australian real property.