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Cryptocurrency with no cost basis

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Initiate

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Hi - what is the tax implication for cryptocurrency "Air Drops", where a cryptocurrency company gives out free cryptocurrency to generate hype about its product.

 

For example if somebody fills out an online form to receive free cryptocurrency, receives it then exchanges it for Bitcoin, then exchanges it for $AUD, would there be tax payable?

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Initiate

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No advice? Thanks ATO.

 

What about hard-fork cryptocurrencies?

Initiate

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Good question...bumping it.

 

Hopefully ATO will address this. This is going to be a more and more frequent question. Holders of BTC have received a few airdrops and numerous forks since Bitcoin Cash forked. I'd guess at least 5 forks on BTC. What are our tax obligations ?

 

It's complicated (isn't all crypto)

 

What constitutes ownership ? Some exchanges pass along the fork (if you hold BTC) while other don't. Some pass along immediately, others much later. If you hold private keys, you can claim a fork but some people don't even know they are entitled. Some forks are dubious or possibly scams and, even though you are entitled, you may not feel comfortable downloading software to claim. Some people want to but lack the expertise.

 

Is it something you received for free (no cost) and then only account for when you sell ? Some people believe that, if it had value on the day you "received" it then you are obligated to treat that as income and then incorporate that into the cost basis (for when you sell later). However, some of these forks have their best prices on the first day and then decline as people sell. Then you'd have to pay taxes on the 'income' of something you hadn't received and, in the example of badly designed/scam forks, you don't feel comfortable claiming (so you can sell to pay taxes on it)

 

Looking forward to ATO response...difficult topic, don't envy them.

Devotee Registered Tax Practitioner

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Self explanatory really zero cost base CGT payable on entire amount unless early adoppter principles apply and I'd suggest a private ruling if you are looking at such a path.

 

Forked assets I'd actually like to know currently we have been treating them similar to a share demerger and using apportioned cost bases which can be painful but seemed like the most logical approach from our research 

I'm not the ATO but I'm a registered tax agent who has been investing in crypto currency for some years now 

Initiate

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Thanks Daniel,

 

I imagine you'll be busy then with all the crypto investors/traders clamouring for help.

 

Agreed on airdrops. Forks are tricky. I'm not familiar with demerger tax treatment and apportioned cost basis. Any links you could provide ? I'm guessing this would mean splitting the initial cost of the Bitcoin purchase amongst the original as well as the forks ? So, if you bought Bitcoin at 200 and then got Bitcoin Cash fork...each would have cost basis of $100 ? That seems confusing if there's more and more forks or if you sell some one year and then get more forks. Geez

 

I've found more research on this topic on the US IRS side (though the IRS has been silent)

 

Seems some are treating the first day of Bitcoin Cash at $277 USD as income received on that day. Then that's the cost basis going forward for when they sell.

 

Good luck with the investments !

Initiate

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This reminds me of the Utopia episode on startups.

 

Government dude:  "What can the government do to help you?"

Startup kid:  "Stay out of our way"