May 23, 2022 Matthew Hung

Additional guidance from the ATO on cryptocurrency

The ATO has released some further high-level guidance on the tax treatment of cryptocurrency which might be useful in determining the tax outcome for clients who are involved in cryptocurrency transactions.

Key points made by the ATO include the following:

• The ATO expects that most people will hold cryptocurrency as an investment and that the disposal of cryptocurrency give rise to a capital gain or loss. Each item of cryptocurrency is a separate asset for CGT purposes. When a taxpayer disposes of one item of cryptocurrency to acquire another, they are disposing of one CGT asset and acquiring another CGT asset.
• The ATO’s view is that it can be difficult to access the “personal use asset” exemption for CGT purposes when it comes to cryptocurrency. Personal use assets are CGT assets that you use mainly for your personal use or enjoyment. Most items of cryptocurrency are held to make a profit. The longer cryptocurrency is held, the less likely it will be a personal use asset – even if the taxpayer ultimately uses it for personal use or consumption.

Some clients could be considered to be carrying on a business of trading in cryptocurrency. If so, the trading stock rules apply which means:

• The cost of acquiring cryptocurrency held as trading stock is deductible;
• Sale proceeds are included in assessable income on revenue account, rather than being recognised as a capital gain;
• Changes in the value of trading stock held at the end of the financial year may need to be reported.

When a taxpayer provides cryptocurrency to another party as a gift this triggers a CGT event and may have tax consequences. The market value substitution rules need to be considered for both parties. For the recipient there are generally no CGT requirements until they dispose of the item.