Cryptocurrency gambling

[#1]

Hi,

Given that the ATO has declared that cryptocurrencies are assets subject to CGT, but that gambling winnings are exempt from CGT, I am interested to clarify exactly how the ATO treats gambling with cryptocurrencies.

Scenario A:

Tom buys 10 ethereum for $15000. 2 months later he sells them for $20000. He has made a $5000 capital gain that is subject to tax.

Scenario B:

Tom buys 10 ethereum for $15000. 2 months later he gambles ALL 10 of them on an online cryptocurrency casino and makes a net win, coming away with winnings of 11 ethereum. He then sells his 11 ethereum winnings for 22000. The ATO lists "winnings or losses from gambling, a game or a competition with prizes" as being exempt from capital gains tax.

Is Tom still subject to any capital gains tax in Scenario B?

[#2]

If 2 months later they are worth $20,000 and he wins $2,000 then $20,000 is subject to capital gains and $2,000 is not?

This is just pure speculation.

For example If I earn $5,000 in Capital gains from an investment and take that and gamble it and win $5,500 then $500 would be exempt because it it was won.

[#3]

I'm not sure it can reasonably work that way where gambling is concerned though.

Otherwise, if Tom were to lose, he then owes $5000 CGT on money that is no longer his.

[#4]

Re-thinking it, I see what you mean. If he loses the losses would also be exempt.

Scenario C then:

Tom sells only his CGT exempt net winnings of 1 ethereum for $2000, keeping the remaining 10.

He gambles all 10 again, this time making a net loss and coming away with 9 ethereum.

He gambles all 9, making a net win again and getting back to 10 ethereum.

He again sells his net winnings of 1 ethereum for another $2000.

He then decides to leave his remaining 9 ethereum alone.

Is any of the $4000 he has made selling off his winnings subject to CGT?

[#5]

With a traditional investment the scenario is pretty clear as you say, because if you make a $5000 capital gain (e.g. you sell shares for $5000 profit) prior to gambling with it, a CGT event has clearly occurred prior to the gambling.

With gambling directly in cryptocurrency however, there is no prior sale of it that would clearly constitute a CGT event.

[#6 · Accepted solution]

Think of them as marbles.

You buy marbles, you swap them for future spins in a poker machine.

You bought them for $10k.

The gambling place gave you 1000 spins that if you used cash would cost you $1000.

You swapped marbles for future spins.

That’s a Barter transaction isn’t it?

What are the spins worth at this stage? 97% of what they cost you accounting for the standard loss from gambling?

A capital loss?

[#7]

Make that gambling place gave you future spins worth $10k not $1k

[#8]

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@___ wrote:

Hi,

Given that the ATO has declared that cryptocurrencies are assets subject to CGT, but that gambling winnings are exempt from CGT, I am interested to clarify exactly how the ATO treats gambling with cryptocurrencies.

Scenario A:

Tom buys 10 ethereum for $15000. 2 months later he sells them for $20000. He has made a $5000 capital gain that is subject to tax.

Scenario B:

Tom buys 10 ethereum for $15000. 2 months later he gambles ALL 10 of them on an online cryptocurrency casino and makes a net win, coming away with winnings of 11 ethereum. He then sells his 11 ethereum winnings for 22000. The ATO lists "winnings or losses from gambling, a game or a competition with prizes" as being exempt from capital gains tax.

Is Tom still subject to any capital gains tax in Scenario B?

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It all hardly works in real life!
There are a lot of nuances where smart people will not risk their savings in order to avoid taxes, because the risks are often much higher than a simple description in the situation!