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Re: Market Value Substitution Rule

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Hi there,

 

I was hoping someone could comment on the following scenario. Jack and Jill are friends. Jack holds an altcoin that he'll only sell to Jill privately for 20% of the altcoin's market value on the open market. Jill pays Jack in bitcoin for the altcoin. Assume the altcoin is sold to Jill for $20 (privately) and is worth $100 (open market).

 

My understanding is that this scenario involves "not dealing at arm's length" and would trigger the market value substitution rule under the CGT provisions. Let's assume both the altcoin and bitcoin have a zero cost base.

 

Jack: Disposed of $100 worth of altcoin to acquire $20 of altcoin. E.g., capital proceeds of $100 (altcoin) and a cost base of $20 (bitcoin).
Jill: Disposed of $20 worth of bitcoin to acquire $100 of altcoin. E.g., capital proceeds of $20 (bitcoin) and a cost base of $100 (altcoin).

 

Is this the correct treatment of the above scenario? I think @AmandaE touched on this in an earlier post, but I wanted to make sure I understand. Thank you to everyone contributing and helping us make sense of it all.

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Devotee

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ok so the replacement value EOFY trading stock method might make more sense.

if you traded 100 for 20, even if 100 was worth 100, then unarguably when you evaluate your trading stock EOFY, the replacement cost of 20 is what ever it is now EOFY... you cannot evaluate trading stock you no longer have, whether you gave it away to someone for free or half price.

the ato only wants to know in the end ... how much capital gain or income you have sitting in trading stock aka cryptocurrency... but they will want detailed records of your trading activity.

I don't think there is scrutiny over you being a bad trader and making **bleep**ty deals. I personally think your query is simpler than you're making it out to be, but you'l need a tax professional to answer your query about arms length trading.. as i'm just using information i've scraped together in the last few months.

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Devotee

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$20 of bitcoin** i.e. Jack.

Well... the rate is inherent to what you got for what you sold. If you sold 100 bucks for 20 bucks, you made the capital loss of 80, I don't see why you'd lie about that and pretend you got 100 bucks for your 100 when you didn't considering you're now left with capital that at the time of the trade was worth 20$

Jill will need to pay capital gains on the 80$ value, so why wouldn't you get to declare the loss?

Would it help if you did the trade through an escrow service? Or cryptobridge or something. I have privately bought cryptokitties from someone off discord for ETH, but they have no market value besides what people are willing to pay, even though they are tokens.. their value is fad. Also i've exchanged btc at a premium with someone to get their bitcoin... the difference? Well an exchange had desposits closed... so the only way I could get internal bitcoin in that exchange to trade things I wanted, was to contact them and get them to transfer to me, after sending an amount +20% to their private wallet.

Sad part of that story  was that it was for COLX for 1 Sat, which I then sold for 2.5 Sat, 12 hours before it went up to 100 Sat on another exchange... my 100$ could have been 10 grand *sniff*

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Devotee

Replies 0

ok so the replacement value EOFY trading stock method might make more sense.

if you traded 100 for 20, even if 100 was worth 100, then unarguably when you evaluate your trading stock EOFY, the replacement cost of 20 is what ever it is now EOFY... you cannot evaluate trading stock you no longer have, whether you gave it away to someone for free or half price.

the ato only wants to know in the end ... how much capital gain or income you have sitting in trading stock aka cryptocurrency... but they will want detailed records of your trading activity.

I don't think there is scrutiny over you being a bad trader and making **bleep**ty deals. I personally think your query is simpler than you're making it out to be, but you'l need a tax professional to answer your query about arms length trading.. as i'm just using information i've scraped together in the last few months.

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