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Bitcoin from referral income and mining operation

Newbie

Views 577

Replies 2

Dear Sir/Madam
 
I acquired Bitcoin during the 2020 financial year via 3 ways listed below: 
 
  1. I bought Bitcoin for investment purposes. My plan is to hold bitcoin for long term capital appreciation.
  2. At the same time, I received Bitcoin whenever I refer someone to a Cryptocurrency trading platform.
  3. I also receive bitcoin from running a small bitcoin mining operation, no mining rigs were purchased. 

 

In all 3 scenarios, no Bitcoin was sold/converted to cash before 30 June 2020 and all the Bitcoin was held for long term appreciation. 
 
Scenario 1
 
It is very clear to me that the coins are subjected to Capital Gains Tax on sale. So no further queries on this. 
 
Scenario 2
 
Will the coins received be treated as ordinary income at market value. if so, how is this reported in the tax return?
 
Is it possible to treat these coins are a capital gains asset as I will be holding them long term?
 
Scenario 3
 
From reading the ATO website, it looks my operation can be classified as a hobby miner. Am i right to say that the coins are treated as a capital gains asset on receipt and there is no income to report in 2020 financial year and the coins are subjected to Capital Gains Tax when sold in the future? If so, is the cost base zero or is it valued  at market price at the time of receipt?
1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Community Moderator

Replies 0

Hi @billevans 

 

The coins received for referring someone to the cryptocurrency trading platform means that you are deriving  ordinary income.  The amount is the market value of the coin when you received them.  You return the amount at item 24.

 

The tax treatment associated with acquiring the asset as income can be independent of the later disposal of the acquired asset. How you account for the later disposal of the asset depends on your activities in holding and disposing of the cryptocurrency that has been acquired- for example as part of a business, investment, profit making scheme or for personal use.

 

It would depend on the exact nature of your mining activities as to whether the receipt of any ‘mined’ cryptocurrency would be taxed as ordinary income or not. If it is appropriately treated as income, then you would declare the market value of the cryptocurrency received as income.

 

If the cryptocurrency is received as part of carrying on a mining business, then the received cryptocurrency would be income of the business and become trading stock and its costs would be the costs reasonably allocated to the cryptocurrency from mining activities.

 

On sale of the cryptocurrency it is assessable as ordinary income. Where your mining activities are not part of carrying on a business but are otherwise income from performance of your activities, then the value of cryptocurrency received will be income and will also be its CGT cost base. Depending on how you hold and dispose of the cryptocurrency will determine its tax outcome when it is sold. Otherwise if you have merely acquired  a CGT asset, then the only tax impact on acquisition is that the cost is the relevant costs of acquiring the cryptocurrency. How you hold and dispose of the cryptocurrency will determine the tax outcomes on disposal of the cryptocurrency.

2 REPLIES 2

Former Community Support

Replies 0

Hi @billevans

 

Thank you for your involvement in the ATO Community online forum. We have referred your question to our technical area and hope to answer you shortly.

Most helpful response

Community Moderator

Replies 0

Hi @billevans 

 

The coins received for referring someone to the cryptocurrency trading platform means that you are deriving  ordinary income.  The amount is the market value of the coin when you received them.  You return the amount at item 24.

 

The tax treatment associated with acquiring the asset as income can be independent of the later disposal of the acquired asset. How you account for the later disposal of the asset depends on your activities in holding and disposing of the cryptocurrency that has been acquired- for example as part of a business, investment, profit making scheme or for personal use.

 

It would depend on the exact nature of your mining activities as to whether the receipt of any ‘mined’ cryptocurrency would be taxed as ordinary income or not. If it is appropriately treated as income, then you would declare the market value of the cryptocurrency received as income.

 

If the cryptocurrency is received as part of carrying on a mining business, then the received cryptocurrency would be income of the business and become trading stock and its costs would be the costs reasonably allocated to the cryptocurrency from mining activities.

 

On sale of the cryptocurrency it is assessable as ordinary income. Where your mining activities are not part of carrying on a business but are otherwise income from performance of your activities, then the value of cryptocurrency received will be income and will also be its CGT cost base. Depending on how you hold and dispose of the cryptocurrency will determine its tax outcome when it is sold. Otherwise if you have merely acquired  a CGT asset, then the only tax impact on acquisition is that the cost is the relevant costs of acquiring the cryptocurrency. How you hold and dispose of the cryptocurrency will determine the tax outcomes on disposal of the cryptocurrency.