WHAT THE TAX?!!

Bitcoins and CGT exemption for personal use assets

 

The ATO considers that digital currencies, including bitcoin, are CGT assets (Taxation Determination TD 2014/26). That determination refers to the detailed description of bitcoin contained in TD 2014/25, and concludes that bitcoin holding rights amount to property. As such, a person holding bitcoin is considered to hold a CGT asset.

 

A private binding ruling demonstrates that bitcoins (or other similar cryptocurrencies) a taxpayer purchased as a hobby during the very early stages of their existence could fall within the CGT exemption for personal use assets.

 

A capital gain made from a personal use asset (a CGT asset used or kept mainly for personal use or enjoyment) is disregarded if the first element of the cost base is $10,000 or less. Any capital loss made from a personal use asset is disregarded.

 

A private binding ruling shows that a taxpayer who is not carrying on a business of trading bitcoins were holding bitcoins on capital account and that the bitcoins fell within the CGT regime.

 

The ruling said that the taxpayer purchased bitcoins informally and/or mined them personally in the very early stages of their existence as a hobby, rather than to obtain a speculative profit. Accordingly, these bitcoins could fall within the CGT exemption for personal use assets.

 

However, bitcoins mined as part of a pool would not be personal use assets because:

•        at the time of acquiring the bitcoins, the taxpayer was no longer required to support the Bitcoin network, as evidenced by the higher difficulty which led to the need to use a pool, and

•        a pool involves cooperation in order to obtain something of value, which puts the activity closer to the commercial end of the spectrum rather than the personal.

 

Similarly, bitcoins purchased through an online exchange would not be personal use assets because:

•        at this stage, the bitcoin market and ecosystem was maturing, as evidenced by the existence of exchanges where bitcoins could be readily bought and sold, and

•        it is more difficult to characterise the taxpayer's purchase was part of a hobby; the taxpayer was more likely to have a substantial aspect of seeking an exchange gain or at least storing value, as opposed to personal use or enjoyment.

 

Information sourced using CCH iknow