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nuthin2taxin(Initiate)Initiate
7 Dec 2023

For several years, I have been purchasing cryptocurrency monthly on behalf of a group of 10 friends as an investment towards a future holiday together. We would like to dispose of the cryptocurrency, but we are now uncertain who is responsible for paying the CGT on the sale.

I won’t use exact dollar values here as it is irrelevant, but this is an example. Over the last 5 years, every month, 9 friends deposit $50 into my bank account. I purchase $500 worth of cryptocurrency on a registered exchange and then send that cryptocurrency to my personal wallet. Now that we would like to dispose of the asset, I want to send 10% of the total amount of cryptocurrency to each friend who will send it to an exchange and convert it to AUD.

I can see 2 possible views by the ATO –

  1. As the cryptocurrency was bought under my name and transferred to my wallet, the moment that it gets transferred to my friends wallet, a CGT event is triggered for which I am now liable because the ATO will view this as though I am gifting the cryptocurrency to my friends.
  2. Every month I have bought cryptocurrency and on the same day that I bought it, technically, I have sold it to my friends at the price I paid for it at $0 profit. I have held the balance in my own wallet, but each person owns 10% of that balance. The balance is then distributed evenly and each person disposes of their own cryptocurrency triggering a CGT event for which each individual is now liable.

I have records of all bank transfers into my bank account and have maintained a spreadsheet with all the purchase dates and prices. So my question is, which of these 2 scenarios is correct and who is liable for paying the CGT on this? Or is there another scenario that I haven’t considered?

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6 replies
367 views
6 replies

Most helpful response

Most helpful reply

Bruce4Tax(Taxicorn)Taxicorn
7 Dec 2023

  1. Yes
  2. No

You should have created a trust or partnership to do this.


You could just sell it in your name, and have all the others contribute to your CGT.


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Most helpful reply

Bruce4Tax(Taxicorn)Taxicorn
7 Dec 2023

  1. Yes
  2. No

You should have created a trust or partnership to do this.


You could just sell it in your name, and have all the others contribute to your CGT.


Liked by nuthin2taxin
nuthin2taxin(Initiate)Initiate
7 Dec 2023

Thanks for your response Bruce4Tax. I thought that may be the case, but I was also looking at this another way. Let's say I buy the Mona Lisa for $1000 today and sell it to you for $1000 on the same day. I hang the painting on my wall and then give it to you 5 years later. You then sell the painting for $2000 and pocket the money. Who pays the CGT, you or me? And sorry, but I don't have $1000 Mona Lisa to sell you...

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Liked by Bruce4Tax
Bruce4Tax(Taxicorn)Taxicorn
7 Dec 2023

  1. Special rules for collectibles, which we can ignore for this example
  2. If $ 1000 was fair value today e.g. for a reasonable copy, and $ 2000 was fair value in 5 years time, then you have made a non-arm's length transfer
  3. CGT rules deem the disposal to be $ 2000, by market substitution rule, so you have a capital gain.


https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/calculating-your-cgt/capital-proceeds-from-disposing-of-assets


Best to get proper advice based on your facts.



Liked by nuthin2taxin
nuthin2taxin(Initiate)Initiate
7 Dec 2023

@Bruce4Tax

Thanks Bruce4Tax. It's good to learn some new terminologies such as arms length transfers and market substitution.

I can see how this would be a non arms length transfer and that part makes complete sense. But if I bought the painting from a dealer at arms length for a fair market value price ($1000, obtaining a receipt of the sale) and then sold it at that same price to a friend for a fair market value price, ($1000, with bank transfer evidence into my bank account) at this point in time, wouldn't there be a CGT event of $0 as there is no gain? The only thing unique about this transaction is that I don't physically hand over the painting, rather it sits on my wall for 5 years until my friend wants it. Now, 5 years later, I hand the painting over that they paid for 5 years ago and my friend sells their painting in an arms length transfer to Joe Public for a fair market value price of $2000. My friend has made $1000 profit and triggered a CGT event. Doesn't my friend now pay CGT on the event rather than me?

The market substitution rule states -If you receive nothing in exchange for a CGT asset, you are taken to have received the market value of the asset at the time of the CGT event. I can't see how the market substitution rule is applied in this instance as there was a payment made for the painting five years earlier. The painting has also not been gifted or sold for more or less than the market value.

I really appreciate your advice as our tax system is quite complex in many ways but also really interesting to try and navigate

nuthin2taxin(Initiate)Initiate
14 Dec 2023

@Bruce4Tax

After speaking to a person who specilaises in crypto tax, their view is that the ATO would view the disposal of the asset as being at the time that the crypto was transferred from my wallet to my friends wallets. Therefore, scenario 1 is the correct answer here and the CGT will fall on me. Not to mention the potential for a Division 293 tax if it pushes my income and concessional super contributions total over $250,000

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Paying CGT on disposal of cryptocurrency | ATO Community