Private ruling: Cryptocurrency - trader or investor
Date of advice: 18 March 2024
Published: 29 April 2024
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you carrying on a business of cryptocurrency trading for the ruling period? | A1: No. | Q2: Do you meet the assessable income test under section 35-30 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Not applicable.

Relevant facts and circumstances: Background In a specified year you commenced playing online games through Game A platform. You work full-time. You are a long-time gamer the idea of playing a game for real world money was appealing to you. You did not have a business plan. You and Person B invested specified amount from your own savings. You provided us with how much you and Person B invested from your own savings. Person B transferred money to your bank account, which you then transferred to your exchange. Game A Platform You played 3 different games in Game A platform, Game AA, Game AB and Game AC. You have provided step-by-step details about how the game works from creating a wallet to collecting rewards. You only sent the Heroes on quests for Game AA. For Game AB and Game AC you only invested in Heroes you did not send the Heroes on quests. You played the games on your gaming computer located in your gaming room. Person B also used their own gaming computer located at their house. During 6-9 months during the ruling period, you spent specified number of hours a day playing the games and spent another hour watching YouTube videos and keeping your finger on the pulse. You play in any free time that you had which was mostly after work and on weekends. You did not develop a research or development strategy prior to entering a quest. You made an Excel spreadsheet to record when the Heroes would need to be sent out/collected from the quests. You are good in math and tried to find ways to quest the heroes in the most efficient way you could. When the cryptocurrency world crashed, your value of coins you had won/earned crashed with it, reducing the value of the assets and investment to a mere fraction of what you had invested. You found it difficult to calculate the profit and loss due to high volume associated with the gaming transactions. You now only do low volume of gaming transactions to allow you to easily track the transactions. The activities within the games amounted to tens of thousands of micro transactions. The transaction number is very large as the act of sending out a party of heroes on a quest in the games resulted in: • A transaction to start the quest, • A transaction to complete the quest; and • Completing transactions included currency rewards. Cryptocurrency You initially wanted to learn cryptocurrency to make profit which you have wanted to do for many years. You started watching YouTube videos learning how to get started in cryptocurrency and on what cryptocurrency projects to invest in. Through these videos you learnt how to get money to an exchange, create a MetaMask wallet etc. This led you to discover videos about a cryptocurrency game called Game AA. As you were learning the game, you started enjoying it more and you saw the potential to make profits at the same time. You use MetaMask to store your cryptocurrency. You and Person B created a specified number of MetaMask accounts between you. You opted not to keep all your assets under one account for security reasons. The exchange was created by you and used to invest any money that you and Person B invested jointly and any money that you invested individually. You used only your exchange account as because you invested jointly it was easier for it to be controlled through one account. You made the buy and sell decisions solely for the money you invested solely. All money that was invested jointly the investment decisions were made jointly with your Person B. You invested most of the profits in the game or into other Game A like Game AB and AC. Your cryptocurrency investment in popular cryptocurrency was mostly separate money which is not significant of your total cryptocurrency activities. When the cryptocurrency markets started crashing you decided to sell a fair bit of your Game A assets and invest them into safer popular cryptocurrencies. Your separate investment was done after the market crashed in hopes that you could recoup some of your losses. You do not have any previous experience in shares or cryptocurrency. You tried to accommodate the hero questing schedules and outside of that you did other cryptocurrency and Game A. You did not complete any training or courses on cryptocurrency other than watching YouTube videos. You did not seek any professional assistance for your cryptocurrency. You did not have any systems in place to preserve your capital and limit your losses. You did not have a set amount that you were prepared to lose. Any money that you invested you were willing to lose as you knew the risks. You did not have any strategy to determine which cryptocurrency to invest. You tried to spread out the risk factor, treating assets like popular cryptocurrencies as safer investment and Game A cryptocurrency as riskier investments. You are unable to import your transaction into Koinly due to the high number of transactions associated with Game A. You estimate your transactions to be very large. The large number is due to sending out a "party heroes" on a quest for Game A. This resulted in a transaction to complete the quest and the completed transaction includes currency rewards. During this period, you had specified number of parties of heroes at the same time, with each quest being completed every specified number of hours. You estimated that there were specified number of transactions that were authorised through MetaMask, which was done manually that incurred a gas fee. You estimated that a specified number of those transactions represent your quest rewards where you received a random amount of quest rewards and quantity of rewards. You have estimated these to result in a specified number of cryptocurrency transactions. You provided us with the losses that you and Person B incurred for the relevant financial years.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: When considered against the factors outlined in TR 97/11 Income tax: am I carrying on a business of primary production? your activities are not consistent with someone expected to be carrying on a business as a cryptocurrency trader. Consequently, your income is not considered assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). As such, your cryptocurrency assets are considered capital gains tax (CGT) assets and the losses will be a capital loss under section 102-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Determining whether income from your cryptocurrency trading activity is assessable income under section 6-5 of the ITAA 1997 is the same as determining whether your activities are considered to be carrying on a business for tax purposes. Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? lists the factors that are considered important in determining if a business activity is being carried on are: • whether the activity has a significant commercial purpose or character • whether the taxpayer has more than just an intention to engage in business • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity • whether there is regularity and repetition of the activity • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit • the size, scale and permanency of the activity, and • whether the activity is better described as a hobby, a form of recreation or sporting activity. The above factors must be considered in light of one another, with no single factor being determinative of whether the taxpayer is engaged in carrying on a business. Even where any one factor is not present, this will not necessarily mean that a business is not carried on: Evans v. Federal Commissioner of Taxation (1989) 20 ATR 922. The bar to be considered a cryptocurrency trader is quite high. Based on the factors of your situation, we have considered the following indicators: | Detailed Reasoning - Whether the activity has a significant commercial purpose or character: This indicator requires that you be able to show that the activity is carried on for commercial reasons and in a commercially viable manner. You need to be able to show that the interaction between the size and scale of the activity, the repetition and regularity and the intention and prospect of profit are sufficient to conclude that the activity has a significant commercial purpose. You started your cryptocurrency activity when you discovered videos about a cryptocurrency game called Game AA. As you were learning the game, you saw the potential to make profits and played other cryptocurrency games. You did not have a strategy or plan to preserve your capital. Someone who was running a business of cryptocurrency gaming would have had a plan in place. You mostly played Game A as part of your cryptocurrency activities and did not have the variety or diversity. Although you had intention to make profit, but you did not make any profit from your trading activities. This indicates that your cryptocurrency activity lacks a commercial purpose. | Detailed Reasoning - Whether the taxpayer has more than just an intention to engage in business: You had an intention to engage in your activities as you saw potential to make profit from cryptocurrency. You kept on investing money into the Game A games (and later cryptocurrency) and you reinvested the winnings back into the games. | Detailed Reasoning - Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity: The intention to make a profit is not, on its own, sufficient to establish that a business is being carried on. Where a business trading in cryptocurrency exists, there is usually a business plan on how the activities will be conducted. Based on the information provided you did not make a profit from your cryptocurrency activity during the ruling period. Your activity does have the prospect of profit. | Detailed Reasoning - Whether there is repetition and regularity of the activity: In the case of cryptocurrency trading, repetition and regularity are important indicators on whether a business is being carried on, with the size and scale of the activity being supporting factors. Your cryptocurrency activities were conducted in your free time mostly after work weekdays and during the day on weekends over a specified period during the ruling period. Your transaction number was very large as the act of sending out a party of heroes on a quest resulted in tens of thousands of micro transactions. Your cryptocurrency trading activities are insignificant compared to your gaming activities that would have been expected of a person who was in the business as a cryptocurrency trader. | Detailed Reasoning - The size, scale, and permanency of the activity: Cryptocurrency trading that is being conducted on a small scale is more likely to be considered investing, however a trader could trade small amounts with high regularity, while a share investor could have several million dollars at stake. Although the number of transactions you had was considerable the majority of these transactions relate to your Game A games. The activities within the games amounted to tens of thousands of micro transactions as each quest generated more than one transaction. Although you had a high number of transactions, the number of trading transactions completed is low. The permanency of the activity was for less than 12 months where you generate a high number of transactions through your Game A games. You have since changed and you are now doing low level transactions. | Detailed Reasoning - Whether the business is of the same kind that is being carried on in a similar manner to that of the ordinary trade in that line of business: Activities are more likely to be carrying on a business where they are carried on in a systematic and organised manner. This usually involves keeping appropriate business records and having a strategy in place to maximise your profits. The following information indicates that you are not carrying out your cryptocurrency trading activities in a similar manner to others in this industry: • You did not have any relevant training • You did not have a business plan in place • You did not have any strategy in place when playing Game A games or a strategy to preserve your capital or when performing your cryptocurrency trades • You mostly played Game A and other Game A projects like Game AB and Game AC as part of your cryptocurrency activities and did not have the variety or diversity that would normally be expected of a commercial trading operation • You had full-time employment. | Detailed Reasoning - Whether the activity is planned, organised, and carried out in a businesslike manner: Activities are more likely to amount to the carrying on of a business where they are carried out in a systematic and organised manner. This usually involves some form of forward planning such as contingencies and market fluctuations, setting profit targets, budgets, maintaining operations on a consistent basis, retaining, and pursuing profitable activities, discontinuing unprofitable activities, and keeping appropriate business records. You had no systems in place to limit the losses or a trading strategy to preserve your capital. This does not display the sophistication that may be expected of a cryptocurrency trading business. You lacked a clear investment strategy when choosing which cryptocurrency to invest in. Someone who was playing a cryptocurrency game would have a plan in place. You were also engaged in another full-time occupation during the ruling period. | Detailed Reasoning - Whether the activity would be better described as a hobby, recreational or sporting activity: You commenced the cryptocurrency activity with the intention to make a profit when you discover videos about a cryptocurrency game called Game AA and saw the potential to make profit. The majority of your cryptocurrency transactions were generated through Game A games. Generally, game playing is something that would generally be considered a hobby or a recreational activity. However, within the games there were cryptocurrency transactions and cryptocurrency is a capital gains tax (CGT) asset which is therefore considered investment income. | Detailed Reasoning - Conclusion: After weighing the relevant business indicators against the information and documentation provided, it is the Commissioner's view that the overall impression is that you were not carrying on a business of trading in cryptocurrency during the ruling period. As such, your cryptocurrency assets are considered (CGT) assets. The losses sustained on the disposal of your cryptocurrency assets would be a capital loss, under section 102-10 of the ITAA 1997. The capital losses can be offset against capital gains made that year or carried forward to future years to offset against future capital gains. | Detailed Reasoning - Question 2: Do you meet the assessable income test under section 35-30 of the Income Tax Assessment Act 1997 (ITAA 1997)? | Summary: As you are not considered to be 'carrying on a business', Division 35 of the ITAA 1997 is not applicable.

Question 1: Are you carrying on a business of cryptocurrency trading for the 20XX-XX and 20XX-XX financial years?