The ATO has released some additional (but brief) guidance on some of the key issues that tax practitioners should consider when clients are engaged in cryptocurrency investment or mining activities.
Many of the issues covered were asked during Knowledge Shop’s Cryptocurrency Forum.
The ATO makes the comment that most people hold cryptocurrency as an investment which they hope grows in value over time to give them capital gains. It isn’t entirely clear how the ATO has reached that view and we would always recommend looking carefully at each client’s circumstances to determine whether they hold cryptocurrency on capital or revenue account.
When it comes to cryptocurrency that is held on capital account some of the main points raised by the ATO in this area include:
While the ATO considers that it is generally less likely that a client’s cryptocurrency activities will amount to a business, it is possible for clients to be conducting cryptocurrency trading and/or mining businesses. In determining whether a business is carried on it is necessary to consider:
Where a client carries on a cryptocurrency business, the trading stock rules apply rather than the CGT rules. This would mean that the cost of acquiring cryptocurrency held as trading stock is deductible, the full amounts received on sale are assessable as ordinary income (not as a capital gain) and movements in the closing value of stock need to be recognised for income tax purposes.