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Uniquely Tricky Crytocurrency Situation - CGT

Newbie

Views 1848

Replies 4

So,

I found out about crypto back in 2011, I'm pretty geeky and I thought it was awesome. I would have been about 17; bitcoin was priced under $1 at the time. Nobody thought of it in terms of appreciation, the 'HODL' mentality didn't exist, the biggest story was some guy buying a pizza with bitcoin. I wanted to have a crack, so I bought a couple hundred coins for less than $100. I bought something online (I think it might have been vitamins from an online pharmacy), then had over a hundred coins leftover.

 

Life happened, I got distracted and in 2014 I grew interested again after the first wave of mainstream bitcoin mania. Again, it was the tech that excited me, and I looked into the altcoins that had begun to boom. At the time I was studying computer science and pure mathematics, which aligned with my interest in cryptography. When I realised I still had bitcoins, I exchanged most of my holding for a privacy focused coin which I played around with a bit, testing the new protocol. This new coin is fungible, which means that like a real coin any unit can be substituted with any other unit and no history is attached. Again I was sidetracked by other things, and actually thought the coin I had exchanged for had dropped off the map. Turns out it only underwent a name change.

 

This brings us to today, realising I still hold a fair value in cryptocurrency. At this point it would be a handy way of paying my HECS debt or putting a deposit on an apartment, so I am trying to determine my tax obligation. I have no decent records, at 17 I didn't think for a second that <$50 in change from a cryptocurrency transaction would become a record I'd need to keep nearly 10 years later. At most I might have an old screenshot of a partial balance in an account on an online wallet platform that has since collapsed; not much. Additionally the coin I am holding doesn't feature any of the records bitcoin would be able to provide. So essentially I have nothing. From what I read my CGT liability should be 0, given that at every stage acquiring or holding cryptocurrency was a matter of personal interest not investment. If this doesn't apply, I actually lost a greater amount than I have now when another online wallet provider absconded with the funds, which I imagine would offset the capital gain. However, as with the coins I hold now, what records can I provide?

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Former Community Support

Replies 0

Hi @goodbutmaybebad,

Thanks for posting your questions - we're sure your situation will resonate with other early cryptocurrency users who bought for personal use/entertainment purposes!

 

There are a few things to consider here:

As @SetiMaster suggested, it may be a good idea to talk with a registered tax practitioner or to write to us to ask for a private ruling. Private rulings are written advice from us that explain how we think tax law may apply to your situation. They're a free service we provide, and we usually reply within 28 days of receiving your request.

In your request, please include:

  • information about your original intentions when purchasing your currency
  • as much information as you can recall about your transactions, including any records you might have
  • any information you have about the current state of your portfolio.

We can use this information to advise what records you can use to prepare your return and help you work out if you're considered to be an investor or were using the cryptocurrency for personal use.


You can also find registered tax practitioners and financial advisers by searching the Tax Practitioners Board register.

Thanks!

4 REPLIES 4

Devotee

Replies 1


@goodbutmaybebad wrote:

I exchanged most of my holding for a privacy focused coin which I played around with a bit, testing the new protocol. This new coin is fungible, which means that like a real coin any unit can be substituted with any other unit and no history is attached. Again I was sidetracked by other things, and actually thought the coin I had exchanged for had dropped off the map. Turns out it only underwent a name change.

I'm not a tax expert so take any advice from me with a grain of salt.

 

If you exchanged your Bitcoin for another altcoin then, if the ATO are taking the position that crypto-to-crypto exchanges are CGT events which they appear to be, you may have made a taxable capital gain and may need to revise your tax return for that year, and pay any tax due (it sucks, I know). I don't think a crypto to crypto exchange would be covered by the personal use asset CGT exemption (but I hope I'm wrong about this). See: https://community.ato.gov.au/t5/General-tax/Can-cryptocurrency-be-a-personal-use-asset/ta-p/3393

 

In which case you'll almost certainly need to speak to an accountant, and you'll need to work out the value of the Bitcoin you exchanged at the time of the transaction, subtract from that your acquisition cost, and because it was more than a year after you acquired the Bitcoin you can apply the CGT discount. So, say you paid $100 for a hundred Bitcoins way back when, you spent half of them and converted the remainder to an altcoin years later, your cost base would be $50. If the price per Bitcoin at the time of conversion (if you have the wallet address you spent the Bitcoin from you should be able to work out the time of the exchange on the blockchain) to the altcoin was $500 then your capital gain would be $24450 (50 BTC * $500each - $50 cost base). Applying the 50% discount for holding over 12 months you would need, for this example, to add $12225 ($24450/2) to your income for that year.

 

If you subsequently made a capital loss then you may be able to use that to offset a capital gain, but, as I understand it, you can only offset the cost base of the asset lost. So, if the cost base was $25000 for the altcoin, as in the example above, and they were all subsequenty lost you can only claim a capital loss of $25000, even if the altcoin was notionally worth $100000 at the time of the loss.

 

From what I read my CGT liability should be 0, given that at every stage acquiring or holding cryptocurrency was a matter of personal interest not investment. If this doesn't apply, I actually lost a greater amount than I have now when another online wallet provider absconded with the funds, which I imagine would offset the capital gain. However, as with the coins I hold now, what records can I provide?


I wouldn't assume your CGT liability is 0. Your initial actions probably would have qualified as personal use, but once you exchanged the Bitcoin for another cryptocurrency it comes down to whether the ATO regards that crypto to crypto exchange as a CGT event or legitimate personal use, for which you may have to get a private ruling.

 

Also, as I stated above, any capital loss you claim can only be from the cost base, regardless of what it was notionally worth when it was lost.

 

Anyway, that's my understanding. Could someone more qualified confirm this?

Newbie

Replies 0

Awesome, thanks for the help. I didn't realise capital loss was based on the cost base, good to know. It sounds like I might be best to engage an accountant and potentially seek their guidence in navigating a private ruling. I'll see what evidence I can put together, but I don't think it'll be much. I guess I was most curious to know how the ATO approaches situations where documentation is scant, absent or unattainable.

 

Devotee

Replies 0

I would write down honestly what you remember as being the transactions you engaged in, and mark those entries with the evidence you have to support each of them.

Secondly I would calculate how much tax I would have to pay in the worst possible in

Most helpful response

Former Community Support

Replies 0

Hi @goodbutmaybebad,

Thanks for posting your questions - we're sure your situation will resonate with other early cryptocurrency users who bought for personal use/entertainment purposes!

 

There are a few things to consider here:

As @SetiMaster suggested, it may be a good idea to talk with a registered tax practitioner or to write to us to ask for a private ruling. Private rulings are written advice from us that explain how we think tax law may apply to your situation. They're a free service we provide, and we usually reply within 28 days of receiving your request.

In your request, please include:

  • information about your original intentions when purchasing your currency
  • as much information as you can recall about your transactions, including any records you might have
  • any information you have about the current state of your portfolio.

We can use this information to advise what records you can use to prepare your return and help you work out if you're considered to be an investor or were using the cryptocurrency for personal use.


You can also find registered tax practitioners and financial advisers by searching the Tax Practitioners Board register.

Thanks!