Initial Investment of under $10000

[#1]

i am still confused as to the question of "Initial Investment of under $10 000" or less and if CGT applies or not. 

If an initial Investment by an individual of $1000 into a crypto currency in 2017 and held without trading for over 12 months with the investment increasing to $25000.... of the same crytpo curreny....and are now wanting to convert back to AUD...

Is it the case that 1. Because the initial investment was under $10 000 (in this example $1000) is it the case that the profit of $24000 is not subjest to CGT if cashed out into AUD in one lump some and used for personal use items or

2. Because the initial investment was under $10 000 (in this example $1000)  and the individual withdrew amounts of $9999 in aud and used for personal use items are these withdrawls CGT exempt?  

3. Is it only if the crypto currency profits are used as crypto currency to purchase personal use items that are they CGT exempt?

Thank you

[#2]

Hi DD,

The world of cryptocurrency can be a little confusing, so good question!

Crypto-currencies (like Bitcoin, Etherium, NEM, etc) are not treated as money or foreign currency. They are a type of property, and are considered an asset for Capital Gains Tax purposes. The ATO published a general guidance product on tax treatment of crypto-currencies, with specific reference to Bitcoin - you can read the paper here. For the purposes of my answer, I will use "bitcoin" to mean crypto-currency generally.

In short: Point 3 in your question is correct: if the profits of the crypto-currency are used to purchase goods or services directly, without converting to cash, and the value of those purchases are less than $10,000, then generally they will be CGT-exempt.

Crypto-currencies are assets for CGT purposes, so normal CGT rules apply, and the profits must be included in your personal income tax return. You may be eligible for the CGT discount if meet the eligibility criteria, reducing the amount of the gain you must include in your income - check the eligibility rules for more information.

From the crypto-currency guidance product, you may notice that there will generally be no income tax or GST implications if you use bitcoin (or whichever crypto-currency you own) to purchase goods or services for personal use or consumption, where you are not in a business or carrying on an enterprise, and where the cost of the bitcoin is $10,000 or less.

If you convert the bitcoin to another currency first (such as AUD at a bitcoin ATM), then the CGT event is selling the bitcoin for cash, and the exemption will not apply - even if that cash is then used to purchase personal use assets.

Good luck!

TaylorY

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

[#3]

http://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s108.10.html

http://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s118.10.html

[#4]

Oops scratch 108.10 (refers to collectables not personal use assets)

Go 108.20, 108.25, 108.30

[#5]

@TaylorY

I’m curious about the over $10,000 purchase part.

I am no expert just a student of the topic, so there maybe something basic I am missing.

When I read the sections of ITAA I can find that seem relevant I can find $10,000 on the cost side but can’t find it on the sale side.

Not saying it’s not a good approach, just trying to understand it’s legal basis. 118.10 seems pretty firmly about Cost base.

I was thinking maybe the view was that in a barter transaction the assumption was that before the swap a quasi “sale” of the crypto to $AUD to enable the transaction to proceed? And that this quasi sale would be presumed to occur to the asset being put forwards for consideration on both side of the transaction.

That the legal basis or what am I missing?

[#6]

Hi Jack1,

When you exchange crypto-currency for personal use assets, without converting the crypto-currency to cash first, you are changing one CGT asset into another - a barter or countertrade arrangement. The presumption is that the goods are given their nominal market value at the time the transaction took place, so it is important to keep records if you are intending to take this course of action.

From the guidance product on the tax treatment of crypto-currencies:

• Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.

As you can see, when the bitcoin (or other crypto) is exchanged for personal use assets below the $10,000 threshold, the capital gain or loss will be disregarded, as the crypto is treated as having the characteristic of the personal use asset. Under div 118.10(3), you disregard the capital gain you make on a personal use asset if the first element of the cost base is $10,000 or less. Keep in mind that the first element of the cost base is the amount you paid to acquire the asset (110.25(2)).

I hope that's more clear for you, but you can read the full guidance on tax treatment of crypto-currencies here.

Kind Regards,

TaylorY

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

[#7]

Hi @io,

Thanks for your question!

In terms of an exemption from capital gains tax, an investment is not a personal use asset.

In order to be for personal use, an asset must be kept mainly for your personal use or enjoyment. If you use cryptocurrency as an investment and then use it privately to obtain personal goods or services, this wouldn’t constitute private use under the existing rulings and you would be subject to CGT on your disposal of your bitcoin.

Thanks.

[#8]

Thanks TaylorY,

Appreciate your response. You seem to be the only one answering questions

I buy Bitcoin years ago for $5000, it goes up to being worth 200000. I find someone who wants to sell me a sports car for 150000 and as long as they are prepared to take Bitcoin for it then I pay no CGT ? In your response and the ATO link, you said that as long as good or service was being bought and as long as the cost was less than 10000, then it was CGT free. If Bitcoin goes up tremendously in a decade...could I buy a house with it CGT free ?

Thanks !

[#9]

Hi io,

I think you have misinterpreted my original post. If you were to trade bitcoin for a sportscar worth $150,000, then you would include the total amount of the capital gain in your assessable income for that financial year. The same rules apply if you use bitcoin to purchase a house (or any other CGT asset that is not a personal use asset worth less than $10,000).

For example:

1. Take the gross capital gain:$150,000 in your example
2. Subtract the cost base of the asset (Cost base has five elements, see division 110.25)
3. Include any other capital gains you have made that year
4. Apply any discounts that may apply
5. Subtract any prior year capital losses that you have carried forward (div 102.5 and div 102.10).

You must calculate capital gains made on the sale or trade of crypto-currencies, and include those gains in your assessable income for the financial year. You can read all about Capital Gains Tax here.

Kind Regards,

TaylorY

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

[#10]

Thanks for your patience TaylorY

Clearly there is a need to clarify in this new area, and that would be expected, perhaps even to legislate where tax collection is at risk.

And hopefully some humble exploration here at least points to areas of confusion if not to any legal deficiency.

Appreciate your answers.

The point of misunderstanding rests I believe rests with the $10,000 amount as a threshold for causing capital gains to be accounted for in association with the “capital proceeds”.

The cost base $10,000 is clear in the Law in 118.10(3).

There doesn’t seem to be a value $10,000 in any other section?

That section clearly says of that the Capital Gain is “disregarded” if the first element of the assets cost base is less than $10,000.

It says nothing about including it again even though you just disregarded it if the Capital Proceeds exceed $10,000.

That the way you see it?