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Tax implications on lending Bitcoin

Newbie

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Replies 21

Hi,

 

A good friend of mine has a Pty Ltd company that trades on local cryptocurrency exchanges.

 

He offered me to lend him my bitcoin and he’ll pay me back a monthly return + give them back to me at any time upon request (within 5 days).

 

I’m not sure regarding the tax implications though?

 

Could you please let me know how this is treated?

 

  1. Presume I’ll need to pay the usual tax on the interest received? (interest payments will be received in AUD)
  2. When the Bitcoin is returned to me (say in 2 years’ time), are there any tax implications at that point?
  3. Once I will eventually sell them (say shortly after I get them back), will I still be entitled to the 50% capital gain tax exemption? (I bought them over a year ago, will now lend, get back in 2 years, sell for example after 2 weeks)
  4. Would the answers to questions 1-3 be different if a related party (such as his wife or sister) lend to his company? (he’s looking for more lenders so he asked me to ask for him while I’m at it)

Thank you! :-)

 

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Most helpful response

ATO Certified Response

Former Community Support

Replies 7

Hi @Roby,

 

Thanks for your patience whilst we received specialist information regarding your query!

 

Firstly, whilst this arrangement is broadly described as ‘lending’, we think that you dispose of your cryptocurrency  when you give it to your friend. That might mean that you make a capital gain or it might mean that you derive some income.  

 

If cryptocurrency is provided to you as part of this ‘lending’ it will not be the same cryptocurrency that was ‘lent’. Accordingly, you will acquire a new item of cryptocurrency when ‘the loan’ is repaid. That new cryptocurrency will only be subject to CGT discount once you have held it for more than 12 months.

 

In working out your gain or profit on the disposal of the original cryptocurrency you need to take into account the value of the cryptocurrency that you are going to receive in two years. You also need to take into account the payment (the monthly return) that you are entitled to as part of this transaction, and that may be ordinary income.

 

Thanks

 

KylieS

 

21 REPLIES 21

Former Community Support

Replies 0

Hi @Roby,

 

Welcome to our Community!

 

We're checking information regarding your query with a specialist area and we hope to get back to you with further information in the next few days.

 

Thanks, JodieH.

 

Most helpful response

ATO Certified Response

Former Community Support

Replies 7

Hi @Roby,

 

Thanks for your patience whilst we received specialist information regarding your query!

 

Firstly, whilst this arrangement is broadly described as ‘lending’, we think that you dispose of your cryptocurrency  when you give it to your friend. That might mean that you make a capital gain or it might mean that you derive some income.  

 

If cryptocurrency is provided to you as part of this ‘lending’ it will not be the same cryptocurrency that was ‘lent’. Accordingly, you will acquire a new item of cryptocurrency when ‘the loan’ is repaid. That new cryptocurrency will only be subject to CGT discount once you have held it for more than 12 months.

 

In working out your gain or profit on the disposal of the original cryptocurrency you need to take into account the value of the cryptocurrency that you are going to receive in two years. You also need to take into account the payment (the monthly return) that you are entitled to as part of this transaction, and that may be ordinary income.

 

Thanks

 

KylieS

 

Newbie

Replies 6

Hi Jodie,

 

Thank you for your detailed reply.


Must admit I was very surprised by this position that the ATO is taking.

 

According to this logic, if I send 1 BTC to an exchange and then after a few days I change my mind and withdraw 1 BTC from that exchange (no trade has happened in-between), are you saying that I need to consider this a tax event because there is no guarantee that I received back the same Bitcoin I sent them?

 

That doesn't sound right but if I'm following the logic of your reply, that seems to be the way the ATO wants me to treat this event?

 

Could you please let me know?

 

Regards,

Roby

Community Moderator

Replies 5

Hi @Roby,

 

That is correct. When you swap one cryptocurrency for another you're considered to have disposed of one and acquired a new one, which means CGT applies.

 

Thanks

 

KylieS

Newbie

Replies 4

Hi KylieS,

 

I'm not sure you understood my question?

 

There was no swap or trade in my example above.

 

Again, here is the scenario:

1. I send 1 Bitcoin to an exchange

2. Then, after 1 week, I withdraw 1 Bitcoin from the exchange.

 

Please note there was no swap/trade/anything else happening between 1 and 2.

 

Questions:

 

1. Is this a CGT event? I'm guessing it isn't. Didn't see anywhere that the ATO wants that bitcoin holders pay CGT on deposits/withdrawals from exchanges. However, the Bitcoin I withdrew isn't the Bitcoin I sent (this can be confirmed by looking at the blockchain).

2. If the answer to q1 is "no, this isn't a CGT event", why is lending a CGT event based on "when a coin or token is provided back to you as part of ‘lending’ this will not be the same coin or token that was ‘lent’" (Jodie's answer above)? In both cases, I sent 1 Bitcoin and I got back 1 Bitcoin.

 

Thank you! Smiley Happy

ATO Certified Response

Community Moderator

Replies 3

Hi  @Roby,

 

This question is a little different to the original question but the answer is broadly the same.

 

From what you have described there is a change of ownership of the original bitcoin when you deposit it with the exchange. That means there will be tax consequences and you will need to work out whether you have made a gain or a profit on that disposal.

 

It really depends on your dealings with the exchange –sending it to the exchange means that you no longer own the original cryptocurrency.

 

In a practical sense there is no difference between ‘lending’ and ‘transferring’ an asset.

 

Thanks

 

KylieS

 

Newbie

Replies 2

Hi Kylie,

 

Thank you for your detailed reply and for bringing in a specialist. I realise that cryptocurrency is still a new and developing industry and that the ATO’s view on how to treat related matters also develops and changes as the industry does.

 

The matter of retaining beneficial ownership makes a lot of sense and would explain why depositing Bitcoin to an exchange is not a CGT event even though the Bitcoin later withdrawn (with no transaction happening in between) is not the exact same Bitcoin (as evident when looking at the blockchain).

 

I explored the lending arena a bit more and found several companies which offer several services along the lines of: “send us your Bitcoin and we will pay you interest on it” (can provide names of such companies if needed). I know Australians are using these companies. Am certain the lenders declare the interest income as needed but do not consider the lending itself a CGT event as they retain the beneficial ownership (those companies do not enjoy the appreciation of the Bitcoin against the dollar as they still owe the same amount of Bitcoins to their customers, the lenders).

 

It seems to me that lending my Bitcoin to my friend is not a CGT event as I retain the beneficial ownership (similar to depositing it into an exchange or into an interest bearing account of corporate companies mentioned above. In fact, some exchanges are themselves offering interest bearing accounts!).

 

Considering all the above, could you please ask the specialist if she or he would be happy to amend the replies to my original questions in the original post? Smiley Happy

 

Thanks again and best regards,

Roby

 

 

Community Moderator

Replies 1

Hi @Roby,

 

Thanks for your patience. I am checking this out.

 

Will get back to you with more information.

 

Thanks

 

KylieS

Newbie

Replies 0

Hi Kylie,

 

Any word from the specialist?

 

Have seen we started this thread learned about common practice of lending Bitcoin (either to special companies or within the exchange itself, so margin traders can use it) so I'm sure it happens a lot and surely isn't a tax event? (since the benefical ownership is maintained)

 

Thanks again and best regards,

Roby