Edited version of your written advice

Authorisation Number: 7915126463611

Date of advice: 16 January 2019

Ruling

Subject: Website forums

Issue 1: Online Cryptocurrency Forum

Question 1

Is your Website carried on as a business?

Answer

Yes

Question 2

Have you been carrying on a business from the registration of a business name and ABN for the Website?

Answer

Yes.

Question 3

Will the donations received be assessable before and after the business commenced and your expenses incurred in relation to the Website be allowable deductions?

Answer

Yes

Issue 2: CGT and Personal Use Assets

Question 4

Will your disposals of your Cryptocurrency A (A) be taxed on capital account and not revenue account?

Answer

Yes

Question 5

If yes, will the personal use asset exemption apply to disregard any capital gains?

Answer

No

Question 6

Will your disposals of Cryptocurrency B (B) be taxed on capital account and not revenue account?

Answer

Yes

Question 7

If yes, will your Capital losses, in respect of the disposals of the B, be disregarded under the personal uses asset loss rule?

Answer

No

Question 8

Can the CGT discount apply to reduce the capital gains made on A held for more than 12 months?

Answer

Yes

This ruling applies for the following periods:

Financial year ending 30 June 2015

Financial year ending 30 June 2016

Financial year ending 30 June 2017

Financial year ending 30 June 2018

The scheme commences on:

1 July 2014

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

After reading about a cryptocurrency (CR A) you became convinced of the worth of CR A.

CR A has corporate uses.

You purchased cryptocurrency B (CR B).

You only purchased the CR B to enable you to purchase CR A.

You purchased CR A with a view to supporting CRA over the longer term.

Your transaction of CR B resulted in a loss.

Later you acquired Z CR A.

Then you resigned from your employment to seek other employment.

Later you started a website (Website) to discuss CRA.

The aim of the Website is to be an independent Website

You had no experience in running a Website.

You registered the Domain name.

You promoted the Website.

You accepted donations of CR A. The donation facility is offered purely to cover the operation costs of running the Website. Donations are anonymous and not linked to any personally identifiable information.

Your first donation was received a little later.

Then you commenced full time study.

Then you registered a business name and applied for an ABN.

You registered the business name to give the Website its own identity and maintain your privacy, so that your personal name did not appear as the recipient when accepting donations via a payment system.

You did not intend to carry on a commercial business at this point in time.

You incurred expenses for hosting the Website.

You received a donation of $X1 via the Payment system from one of the original founders of CR A After that you ceased your full time study.

Then the Website experienced a large increase in traffic which substantially increased the running costs. You decided to implement a banner and a one off membership fee to pay for the costs. Where a membership fee was paid the banner would be removed for the user. You indicated the options to the Website via an announcement.

You disposed of Y of CR A of your personal holdings; these were purchased by you (and not donated to the Website).

A portion of the sales proceeds was used to purchase

● Y1 CR A

● X3 foreign currency A was transferred to your Bank accounts and the funds were used by you to meet your general living expenses, including expenses for food, rent, insurance and utility bills.

Banners were first visible to the on the Website on date Z.

Initially the Banners were visible to only the administrators while integration and testing was carried out. During the testing time there were small amounts of revenue generated but these amounts were not actually paid.

On Z1 you received a large donation from an executive of CR A (CRdontation1).

The banners were removed from the Website shortly after.

You do not have a relationship with the original founder or the executive and you had no communication with them prior to or subsequent to these donations.

After that donation you disposed of X4 CR A, none of which had been donated to the Website for foreign currency amounts.

● You purchased X5 CR A

● Approximately X6 foreign currency A was transferred to your bank account

● The funds from the transfers listed above were used by you to meet your general living expenses, including food, rent, insurance and utility bills.

● Z2 foreign currency A was transferred to your bank account CR A small portion of this amount has been used by you to fund the following expenses and purchases:

● purchase of home furniture;

● purchase of a car; and

● fees for income tax advice.

Then you opened a business account for the Website.

You now have a separate account for your personal purchased CR A

You have not sold any of the CRA donations received for the Website.

Recently you created a separate bank account into which the Australian Currency proceeds of the Donations of the Website would be deposited.

You have the A from the donations from the Website and your personal investment of CR A donations in the same ‘cold storage” wallet.

You are not currently employed.

You initially spent up to 10 hours a week maintaining the Website.

You now spend up to 15 hours a week maintaining the Website.

You have made over a thousand posts to the Website.

You are the sole administrator and owner of the Website.

You keep records of the trades, the expenses and donations from the Website.

You respond to legal requests for the Website.

You maintain and enhance the Website by applying patches and upgrades as needed, and adding additional apps and add-ons.

General Website information

Visitors to the Website can access the content of the site free of charge. Visitors can sign up to be a member without charge.

Since its conception the Website has over XX,XXX members, and over XXX,XXX individual posts.

There are options to use languages other than English.

It is not possible to pay to obtain any special benefits from the Website.

The Website is professional in appearance and nature. It is structured and organised.

The purpose of the Website is to promote honest discussion about Cryptocurrency, where members can share their opinion about the cryptocurrency, receive email updates and follow topics of their choosing. Visitors can view the discussions.

There are links to the Website from other sites.

Visitors or members of the Website can make donations a via payment gateway or via CR A.

The site is not affiliated, associated, authorised, endorsed by, or in any way officially connected with CR A, or any of its subsidiaries or its affiliates.

The Website has different member ranks. There are X moderators, all volunteers to help with the administration of the Website.

Relevant legislative provisions

Income tax Assessment Act 1936 Section 21A

Income tax Assessment Act 1997 Section 6-5

Income tax Assessment Act 1997 Section 108-5

Income tax Assessment Act 1997 Section 108-20

Income tax Assessment Act 1997 Section 995-1

Reasons for decision

Detailed reasoning

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

The intention is an indicator

The intention of engaging in the activity is a relevant indicator. However, a mere intention of an activity as an indicator of being a hobby or carrying on a business is not enough. 'The carrying on of a business is not a matter merely of intention. It is a matter of activity.... At the end of the day, the extent of activity determines whether the business is being carried on. That is a question of fact and degree.' Brennan J in Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497.

Taxation Ruling TR 97/11: Income Tax: am I carrying on a business of primary production? provides a guide to indicators that the courts have held to be relevant as to whether or not a person is carrying on a business. In the Commissioner's view, the factors that are considered important in determining the question of business activity are:

● whether the activity has a significant commercial purpose or character

● whether you have a purpose of profit as well as a prospect of profit from the activity

● whether there is regularity and repetition of the activity

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

● the size, scale and permanency of the activity, and

● whether the activity is better described as a hobby, a form of recreation or sporting activity.

The above factors are considered in combination and as a whole. Whether a business is being carried on depends on the general impression gained from looking at all of the factors, and whether they provide the activity with a 'commercial flavour'.

Commercial purpose or character

Usually one can ascertain an activity has a commercial purpose or character through a business plan, but there are other indicators if a plan does not exist. Such as whether the activity is planned, organised and carried on in a businesslike manner for example:

● If you have expertise in the activity or the extent you researches the activity, or

● the depth of market for the activity, or

● the way in which the activity is marketed, or

● compliance with legal and other regularity obligations, or

● the maintenance of the activity.

In your case you do not have a business plan.

Your intention was to support CR A over the longer term. Prior to operating the Website you had researched and personally invested in cryptocurrency.

As Administrator you have been actively involved in the website.

The Website recruits volunteers.

The Website is open to the general public, and currently has over XX,XXX members with over XXX,XXX posts.

There are links to the forum from other sites.

You registered the business name, applied for a sole trader Australian Business Number, and have opened a separate bank account.

Once you had registered the business name, you activated a payment system to collect donations.

You have a Business Account that you use to collect donations.

You respond to legal requests for the Website.

You maintain and enhance the Website by applying patches and upgrades as needed, and adding additional apps and add-ons.

It is clear that the Website does have an overall commercial character.

Purpose of profit / Prospect of profit

Profit is a very important indicator. Whether it is merely the purpose of profit or the prospect of profit, profit is one of the main separators that determine if an activity is a business or a hobby. Hobbies are usually run at a loss. In Hope v. The Council of the City of Bathurst (1980) 144 CLR 1; 80 ATC 4386; (1981) 12 ATR 231at CLR 8-9; ATC 4390; ATR 236, Mason J indicated that the carrying on of a business is usually such that the activities are:

‘... activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis.’

In Smith v. Anderson (1880) 15 Ch D 247 at 258, Jessell MR said that:

'... anything which occupies the time and attention and labour of a man for the purpose of profit is business.'

In Case H11 76 ATC 59 at 61; 20 CTBR (NS) Case 65 at 603, the Chairman of Board of Review No 1 said:

'In determining whether a business is being carried on it is, in my view, proper to consider, as one of the elements, whether the activities under consideration could ever result in a profit...'

In your situation, you actively sought funds to maintain the Website, through “donations” of both CRA and Australian dollars (through a payment system) and advertising.

You earned funds through the banner.

Even without the CRdonation1, the “donations” exceed the expenses.

As well as the direct income from the forum you personally benefit from the rise in value of CR A, as you own a substantial quantity of CR A.

You have taken steps to profit from the Website, and indeed you have profited from the Website.

Regularity and repetition

TR 97/11 says that “The repetition of activities by the same person over a period of time on a regular basis helps to determine whether there is the 'carrying on' of a business.”

You undertake regular activities for the Website.

You are the sole administrator and owner of the Website.

You keep records of the trades, the expenses and donations of the Website.

There is regularity and repetition in the activities you do in connection with of the Website.

Same kind and carried on in a similar manner to that of ordinary trade in that line of business

Where an activity’s operations are carried on in a manner similar to others that are in business, it provides evidence that you are indeed carrying on a business.

In your case the Website is of a professional standard and similar to other forums on the web for other on line/general activities. Specifically:

● The Website has a professional appearance

● There are links and resources available to the general public and members.

Size scale and permanency of the activity

The activity has the size scale and permanency of a business.

You have been running the Website for a number of years.

There are over XX,XXX members and XXX,XXX posts.

You believe the CRdonation1 was made to ensure the continuance of Website.

In Summary

Taking into account the entire circumstances of the Website it is clear that the Website is and has been a business for most of its existence.

Question 2

Have you been carrying on a business from the registration of a business name and ABN for the Website?

Detailed reasoning

You were in business from the registration.

Your situation is similar to example 25 in Taxation Ruling 2016/3 Income tax: deductibility of expenditure on a commercial Forum (TR 2016/3).

Example 25 - business from hobby

142. Abishek has a full time job and earns a salary. In his spare time, Abishek is a keen home-handyman and he decides to set-up a home-handyman advice website on which he will post articles and demonstration videos, and host an online forum.

143. If the website proves to be popular, Abishek sees an opportunity to make money through advertising and commissions from sales.

144. Abishek engages a web developer to design and create the website. He develops the initial content which the developer will upload. Once the website goes live, he continues to produce and publish content, paying periodic hosting and web maintenance fees.

145. After the website has been operational for several months, Abishek decides that his website is receiving sufficient traffic to generate income. He establishes formal relationships with other businesses to provide links and advertising, and devotes significant time to developing content.

146. Applying the principles in paragraph 13 of TR 97/11, Abishek is carrying on business from the time he decides to commercialise his website. From that time, as Abishek uses his website for a taxable purpose, his hosting and maintenance fees are deductible.

147. Although the initial website expenditure forms part of the cost of an 'in-house software' asset, Abishek was only carrying on a hobby at that time. It is only when he begins to carry on a business that the website is used for a taxable purpose and its decline in value as in-house software is deductible under the capital allowances provisions.

148. The periodic hosting and maintenance fees that Abishek incurred that relate to the period prior to the commencement of business are private expenses and not deductible.).

As such we can apply the principles in paragraph 13 of TR 97/11, you were carrying on business from the time you decided to commercialise the Website. This is the date you established formal relationships with other businesses to provide links and advertising as evidenced by the registration of a business name and applying for an ABN.

Question 3

Will the your receipt of donations received, including one very large donation, be assessable before and after the business commenced and your expenses incurred in relation to the forum be allowable deductions?

In summary, all donations are assessable income.

Before the forum is a business

Section 6-5 of the ITAA 1997 provides:

(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.

Whether donations and gifts received constitute ordinary income is a matter of fact to be determined in each case. In each case, the character of the receipt in the hands of the recipient is examined objectively to determine whether the donation or gift was made to the donee in relation to an activity or occupation that produces assessable income, or whether the donation or gift was made to the donee in relation to some personal quality or circumstance (Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; [1956] HCA 21; Squatting Investment Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570; [1953] HCA 13; Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514, 526; [1966] HCA 48). The former will be considered assessable income, whilst the latter will not.

In addition, the motives of the donor may be relevant, but are not decisive (Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47, 55; [1956] HCA 21). Motives for making a donation or gift can range from personal goodwill, which tends to indicate non-assessable income, to donations or gifts with a commercial motive, which tends to indicate assessable income.

Taxation Ruling IT 2674, (Income tax: gifts to missionaries, ministers of religion and other church workers – are the gifts income? (IT 2674)) for the factors that need to be considered in determining the quality or character of the donation or gift. They are:

● how, in what capacity, and for what reason the recipient received the gift or donation

● whether the gift or donation is of a kind which is a common incident of the recipient ' s calling or occupation

● whether the gift or donation is made voluntarily

● whether the gift or donation is solicited

● if the gift or donation can be traced to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for that service

● the motive of the donor (but it is seldom, if ever, decisive), and

● whether the recipient relies on the gift or donation for regular maintenance of himself or herself and any dependants.

If a gift or donation is to be included as assessable income it depends on the quality or character of the gift or donation in the hands of the recipient.

The donations you received through the Website are collected for the maintenance of the Website. All donations consist of CR A or payment system contributions.

The Website is about CR A. You have personally invested in CR A, and have a strong interest in CR A and would benefit from a growth of CR A.

You have not converted any of the CR A Donations into Australian Dollars.

It is apparent from the Website that a website which discusses the merit of CR A has a commercial benefit for the founders of CR A, who have subsequently donated CR A to you. It is also provides a platform for the discussion of CR A which benefits the holders of CR A in a number of ways.

You are providing a service to those who have invested in CR A or founded CR A.

All donations have been donated by either CR A founders, or those who have invested in CR A.

Gifts or donations can be assessable as ordinary income if they are made incidental to an office, employment or provision of services.

Weighing up these factors, it is concluded that the receipt of donations in your hands are assessable income under section 6-5 of the ITAA 1997.

After the Website is a business

Where it is possible to point to any employment, personal exertion or another income- earning activity is an indicator if the gift or donation is part of the assessable income. Paragraph 17 IT 2674 says “gifts received in the course of carrying on the business are assessable income.”

“The relation between the gift and your activities must be such that the receipt is in a relevant sense a product of them” Scott 117 CLR.

As the consideration involves non-cash business benefits Section 21A ITAA 1936 applies, this requires that any benefit that is provided in a business context to be regarded as convertible into cash in determining whether the benefit is income. It also in this case specifies that the amount of income is equal to the amount that the recipient of the benefit would have paid for it at arm's length.

The gifts received by you are not personal donations, they are donated to the Website, as a reward and encouragement for the services provided.

Deductions for running Website

It is accepted that the costs of running the Website are incurred in earning assessable income and therefore will be deductible when incurred.

Issue 2: Personal Use Assets

Question 4

Will your disposals of your CRA, be taxed on capital account and not revenue account?

Assessable income

Division 6 of the ITAA 1997 sets out what amounts are included in the taxpayer's assessable income. It provides that the following amounts are included:

● income according to ordinary concepts; that is, ordinary income (section 6-5 of the ITAA 1997), or

● an amount which is included by a specific provision about assessable income; that is, statutory income (including Capital Gains).

Ordinary income

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held by case law to include three categories, namely, income from rendering personal service, income from property and income from carrying on a business.

Profit from an isolated transaction is ordinary income when there is a profit making intention and the transaction was entered into, and the profit was made, in carrying out a business operation or commercial transaction.

This view is also covered in TD 2014/26 Income Tax: is bitcoin a ‘CGT asset’ for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997? Which says,

22. Whether a gain on the disposal of bitcoin that are not personal use assets is included in a taxpayer's assessable income as a capital gain or as ordinary income will depend on all the facts and circumstances of the case. In the case of an isolated transaction that is not carried out as part of a business operation, the Commissioner considers that a gain will generally be ordinary income where the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and the transaction was entered into in carrying out a commercial transaction.

Capital gains tax (CGT)

Under paragraph 108-5(1)(a) of the ITAA 1997, a ‘CGT asset’ is:

(a) any kind of property; or

(b) a legal or equitable right that is not property.

Note: Under paragraph 108-5(2)(a) of the ITAA 1997, a ‘CGT asset’ includes ‘part of, or an interest in, an asset referred to in subsection (1).’

Taxation Determination TD 2014/26 explains that Bitcoin is a CGT asset. The principles in this determination can be used on all cryptocurrencies, and it is not limited to Bitcoin.

The disposal of cryptocurrencies to a third party gives rise to CGT event A1. A taxpayer will make a capital gain from CGT event A1 if the capital proceeds from the disposal of the cryptocurrencies are more than the cryptocurrencies’ s cost base. The capital proceeds from the disposal of the cryptocurrencies are, the money or the market value of any other property received (or entitled to be received) by the taxpayer in respect of the disposal. The money paid or the market value of any other property the taxpayer gave in respect of acquiring the cryptocurrencies will be included in the cost base of the cryptocurrencies.

Application to your situation

You purchased CR A

You state that you intend to spend the CR A on purchasing goods and services where possible. However, the circumstance arose where there was a sudden rise in the price of CR A which resulted in a large gain, and you sold some of your CR A.

You state you were merely realising an asset in the best way you had not purchased the CR A with the aim of making profits.

Accordingly, the gains you made from such CR A transactions are not ordinary income for the purposes of section 6-5 of the ITAA 1997.

Donated CR A

While the donations to the Website are business revenue or income according to ordinary concepts, the CR A received are not part of the profit making operations of the business they are held on capital account not on revenue account.

As concluded above, CR A holding rights amount to property, therefore CR A is property for the purposes of paragraph 108-5(1)(a) of the ITAA 1997. Accordingly, CR A is a 'CGT asset' for the purposes of that provision.

Disposals of your CR A both purchased and donated will be subject to the CGT provisions.

Question 5

If yes, will the personal use asset exemption apply to disregard capital gains?

Personal use

A personal use asset is a “*CGT asset (except a *collectable) that is used or kept mainly for your (or your *associate's) personal use or enjoyment” subsection 108-20(2) ITAA 1997 and any option or right or debt relating to such an asset.

Cryptocurrency cannot be a personal use asset if it is mainly acquired, kept or used as an investment. The ITAA 1997 does not provide a definition of investment, however generally it’s the allocation of a resource (money) in the expectation of some benefit in the future.

A capital gain you make from a personal use asset is disregarded if the first element of the asset's cost base is $10,000 or less.

Examples of personal use assets are clothing, furniture, cameras, boats, or sporting equipment.

In most cases, an intangible asset would not be considered to be a personal use asset. An exception to this may be where an intangible asset is used to directly acquire an asset held mainly for personal use and enjoyment. That is, the intangible asset can take on the character of another asset.

An example of an intangible asset would be an option, an option to purchase a boat for personal use would itself be a personal use asset.

In Favaro v. FC of T (1996) 34 ATR 1; 96 ATC 4975, the Federal Court considered whether Italian currency which was held to be converted to Australian currency was a personal use asset.

The evidence of Mr Favaro was that he kept the Italian currency for the purpose of its being exchanged for Australian currency at a favourable rate. The Court concluded that the Italian currency was not used or kept primarily for personal use, and that the gain made by Mr Favaro on exchanging their Italian currency for Australian currency was an assessable capital gain.

Application to your situation

CR A has a commercial purpose. In creating the Website you had personally spent many hours reading and researching the topic of CR A and the potential that it offers. The Website has helped increase awareness and activity of CR A including as an investment opportunity. As the Administrator of the Website you have invested a number of hours a week the Website.

The Website has an individual personal investment focus. The aim of the Website is to be independent.

Although you may have originally purchased them for your personal interest, curiosity or other reasons, once you started the Website, by actively participating in the growth of CR A your actions demonstrate a commitment to the growth of the value and use of CR A.

Another indicator of personal use is the length of time between the purchase and sale, the longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset. Further, if we consider the CR A from the point in time where you purchased it until the sale, there was a considerable rise in value which indicates another motive for holding the CR A.

Given the inherent nature of CR A is commercial and the fact that you are not an enterprise, and have held on to the CR A for a number of years and sold many when the value of CR A had risen significantly, demonstrates that you have not held or used them mainly for personal use. Rather they have been held as an investment.

The relevant time for determining whether or not an asset is a personal use asset is at the time of its disposal. When you have sold your CR A you said the proceeds are to be used for current and future living costs. The proceeds were simply transferred into you Australian Bank Account(s) not used to directly acquire personal use assets.

If you have to exchange a cryptocurrency you own to Australian dollars (or to a different cryptocurrency) to purchase or acquire the items for personal use or consumption, then this strongly indicates the cryptocurrency you own was acquired, held and used for a purpose other than personal use or enjoyment.

The funds in your Australian accounts have been and may be used in the future for living expenses and acquisition of personal assets.

The facts demonstrate that you held and used the CR A for investment purposes while you have acquired personal use assets with funds from your Australian bank accounts the link to the reason for acquiring and holding CR A is not strong enough to conclude that the CR A was held mainly for personal use.

Question 6

Will your disposals of CR B be taxed on capital account and not revenue account?

Question 7

If yes, will your Capital losses, in respect of the disposals of the CR B in XXXX, be disregarded under the personal uses asset loss rule in section 108-20 ITAA 1997?

CR B

As the CR A that were purchased, but not the ones gifted for running the Website, were held on capital account the CR B that was acquired to use exclusively to buy that CR A is also on capital account. As the CR B was sold specifically to purchase CR A, and the CR A is not for personal use (or held for personal use) then the CR B cannot have been held or used for personal use. It is not a Personal use CGT Asset.

Question 8

Can the CGT discount apply to any capital gains made on CR A held for more than 12 months?

Answer

Yes

As you are a resident of Australia for Income Tax purposes the discount method is available for CR A held for more than 12 months. The CR B used to acquire CR A was not held for 12 months so no discount could apply and in any even no gain was made on CR B.