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Tricky ICO Question

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Enthusiast

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What would we do if we bought an ICO in 2017 which involved a realised gain and then the ICO has significantly delayed release. For example, something that should have come out in May still hasn't come out and isn'tlike to do so until even after October, if at all?

It makes it difficult as in a way that realised gain could have really been immediately followed by a complete loss (scam) in 2017. However, we cannot know even after the October deadline. And how could we even pay tax if we havent received the assets to sell / realise actual losses this year? We don't know if there will be a loss gain or complete write-off. 

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ATO Certified Response

Devotee

Replies 1

Hi @GarlicGyros,

 

Capital gains tax (CGT) applies on the disposal of a capital asset - that is, you sell, gift or trade or otherwise dispose of your cryptocurrency.

 

You will need to keep records of your investment in the ICO, but tax won't apply until you dispose of your cryptocurrency. You'll use information about the costs of acquiring and owning your crypto to form your cost base and work out if you've made a capital gain or a capital loss. Check our How do I calculate capital gains tax on cryptocurrencies?

for an explanation on how to work out the tax payable (as well as a sample calculation). 

 

Thanks.

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Devotee

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the disposal of crypto is the capital gains tax event. if you dipose of it for pebbles at the beach that is your business... until you sell those pebbles then the ato wants to know about it.

you cannot get your crypto back right? so you have disposed of it? so all you record is the value at the time for the asset you disposed of, lets say 1eth. 1eth disposed of to ico founders in mid 2017 = 800AUD, which is 400AUD capital loss, because when you bought/traded something to originally (costbase) acquire the 1ETH in early 2017, it was 1200AUD.

cost-base 1200, proceeds from disposal 800 = capital loss 400 <<< this is all the ato wants to know.

when/if you do or don't get your actual pebbles you've been promised is only of interest to the ATO after the fact... which will go on your 2018 tax return as a write off of a 800AUD capital loss in this example. it is a 1200AUD capital loss obviously, but you've already wiped off 400AUD capital loss by declaring it in 2017 tax return from when you disposed of it for ico/pebbles/promises.

after the fact meaning.. after you dispose of your ico tokens/pebbles... if you are then certain it was a scam and you got no assets, you then write off the remaning 800AUD capital asset value set at time of disposing of the ETH for now we know, nothing. until you know your assets or lack of is worth nothing, we only know you've disposed of your ETH at a price in AUD (so it must be for something worth that much, until proven otherwise)

if the ICO founders then miraculously reveal they were hacked and have created a new side-chain to recoup all ico participants the lost tokens with a new more improved token v2 and you've already claimed a capital loss of 800AUD... then these new tokens you get would be the costbase/acquisition of a new asset/token/pebbles 100% profit for the value they are worth at time you get them (how much eth could you sell v2 refund tokens for? how much is that eth worth in AUD = capital profit to be taxed (unless wiped out by other losses in trading other things from money spent/or assets value spent that is past capital gains you've paid the tax on.. you get the point)

that help?

until you know for certain, then you cannot manually trigger a cgt event called 'scam' or 'stolen'... you'd write this in your accounts as a loss = to the cost base price of the asset at the time you disposed of it in good faith to the ico. because as mentioned above, you've already tracked any additional capital loss or gain on that asset (given to ico), at other points it was traded... which I say for the argument you might have "but those assets I gave to the ico were worth much more when I originally bought them, than the value they had when disposed of for the ico"... true and that should be reflected in your account keeping if you have detailed every trade and disposal, including the tax event of disposing of your assets for ico promises or pebbles at the beach (unless those pebbles are for personal enjoyment and use, then you can write that off upto the value of 10k sum per financial year I think... but only if person sold you pebbles directly for your crypto, not for money you disposed of your crypto for).

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Most helpful response

ATO Certified Response

Devotee

Replies 1

Hi @GarlicGyros,

 

Capital gains tax (CGT) applies on the disposal of a capital asset - that is, you sell, gift or trade or otherwise dispose of your cryptocurrency.

 

You will need to keep records of your investment in the ICO, but tax won't apply until you dispose of your cryptocurrency. You'll use information about the costs of acquiring and owning your crypto to form your cost base and work out if you've made a capital gain or a capital loss. Check our How do I calculate capital gains tax on cryptocurrencies?

for an explanation on how to work out the tax payable (as well as a sample calculation). 

 

Thanks.

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Enthusiast

Replies 0

You didn't answer my question regarding scams / failed projects. Some projects havent released tokens long after saying they would (May token release and still nothing in Septmber for example). Do we just treat projects like this as scams and therefore a write-off in 2017-80 FY when you first put money in and effectly lost it then? 

 

Additionally, I'm not clear on:

"You will need to keep records of your investment in the ICO, but tax won't apply until you dispose of your cryptocurrency."


Does this mean that if put ETH into an ICO, this isn't a taxable event? Even if so, what if I had to first convert from XRP to ETH to do this? It's a forced conversion which makes it unfair if I understand you correctly.