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Tax Cryptocurrency: ICO income or capital?

As everyone knows, the taxation of cryptocurrency is a very grey area.  However, the ATO considers that cryptocurrency is a CGT asset (and not cash). Thus the disposal of cryptocurrency for a profit will ordinarily give rise to a capital gain.

This then leads to the next question, is the sale of cryptocurrency on capital or revenue account?  This issue has particular impact on initial coin offerings (ICO) where the cost base of the cryptocurrency is nil.

Whether a gain on the disposal of cryptocurrency 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, for instance an initial coin offering, 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.

If you are able to show that you regularly deal in cryptocurrency then it may be that you are able to show that your dealing is trading and thus in the course of business.

Whether or not you, as the taxpayer, wants your cryptocurrency trading to be on revenue or capital account is another issue altogether.

Confused?  Don’t be alarmed – most people are as it is complex law.

However, Waterhouse lawyers can consider your particular circumstances and advise of how best to declare the monies arising from the sale of your cryptocurrency.

 

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