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Edited version of your written advice
Authorisation Number: 5010056283062
Date of advice: 19 March 2019
Ruling
Subject: Cryptocurrency trading
Question
Were you carrying on a business of cryptocurrency trading?
Answer
No
This ruling applies for the following period:
Year ending 30 June 2018
The scheme commences on:
Relevant facts and circumstances
You joined an Exchange.
You purchased a new phone and computer to conduct your trading activities.
You kept a summary of trading activities; there were very few trades each month.
You were employed full time by an employer during the trading time.
You have a financial loss as a result of your trading activities.
Relevant legislative provisions
Income Tax Assessment Act 1997, Section 6-5
Income Tax Assessment Act 1997, Section 8-1
Income Tax Assessment Act 1997, Section 995-1
Income Tax Assessment Act 1997, Section 35-10
Income Tax Assessment Act 1997, Section 35-30
Reasons for Decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Carrying on a business as a cryptocurrency trader
There are two possible scenarios as to how gains and losses from share trading activities can be treated for income tax purposes. These scenarios and their consequences are as follows:
1. Business Income
2. In this scenario your share trading activities would be considered to constitute the carrying on of a business. Your shares would be regarded as trading stock and any gains or losses would be included in your assessable income. Your income would be ordinary income and assessable under section 6-5 of the ITAA 1997, while your expenses would be deductible under section 8-1 of the ITAA 1997.
3. Investment Income
4. In this situation your cryptocurrency trading activities would be regarded as investing. Your cryptocurrency assets are considered capital gains tax (CGT) assets. Any gains resulting from the disposal of cryptocurrency would be income as a capital gain. Any losses sustained on the disposal of your cryptocurrency would be a capital loss. Your income would be statutory income and assessable under section 102-5 of the ITAA 1997, while a loss would be deductible under section 102-10.
To determine which of these treatments applies to your situation it is necessary to make a determination of whether or not your cryptocurrency activities amount to the carrying on of a business.
Whether or not a person is carrying on a business is a question of fact. The determination of whether or not a business is being carried on is generally a process of weighing up all the relevant indicators within the context of your own situation. No one indicator determines whether or not a business is being carried on.
Taxation Ruling TR 97/11 income Tax: am I carrying on a business of primary production lists the following indicators as relevant in determining if a business is being carried on:
● Whether the activity has a significant commercial purpose or character,
● Whether the taxpayer has more than an intention to engage in business,
● Whether a 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 that is 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 out in a business-like manner,
● The size, scale and permanency of the activity,
● Can the activity be better described as a hobby, a form of recreation or sporting activity?
Applying the criteria to your circumstances
For the year in question, you were not carrying on a business of cryptocurrency trading.
The factors or indicators that give the overall impression that you were not carrying on a business of cryptocurrency trading are as follows:
1. There were a small number of trades for the year
2. The majority of your transactions occurred during the peak of cryptocurrency market values.
3. How you conducted cryptocurrency trades did not show regularity, routine or a system.
4. Six months there was no trading
5. You do not have a written business plan
6. Your cryptocurrency transactions do not show the required repetition, regularity, scale required to be considered to be a business.
7. You do not conduct your activities with a level of sophistication consistent with industry standards.
As a result, your cryptocurrency buying and selling activity is indicative of a cryptocurrency investor and should be returned on capital account.