Private ruling: Losses made from buying and selling cryptocurrency
Date of advice: 26 April 2019
Published: June 2019
Ruling period: Year ended 30 June 2018 | Year ending 30 July 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Did the disposal of your cryptocurrency result in a capital loss? | A1: Yes | Q2: Did the disposal of your cryptocurrency result in a revenue loss? | A2: No

Relevant facts and circumstances: You commenced purchasing cryptocurrency in around 20XX. With the majority of your purchases you had a vague intention of making some money by holding the cryptocurrency for periods of anywhere from six months to three years. All purchases occurred during the 20XX financial year with most of the disposals happening in that same year, with the remainder occurring during the following financial year. The total amount you received from selling the cryptocurrency was less than what you paid which resulted in a loss. You had all your transactions recorded on your laptop but the data was corrupted by a virus and you have been unable to retrieve the information. You have spent over 20 hours retrieving the transactions from cryptocurrency exchanges and wallets to try to reconstruct your transactions but you have found this to be virtually impossible. You are unable to produce the records the ATO may require to substantiate your cryptocurrency transactions. However, you are able to demonstrate the total amount of cryptocurrency you purchased and the total amount you recovered after disposing of all possible holdings. You are also able to accurately track all the AUD-to-crypto and crypto-to-AUD transactions, as well as all AUD deposits and withdrawals into the cryptocurrency exchanges.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1)

Reasons for decision: Summary: You can make a capital gain or loss as a result of capital gains tax (CGT) event happening to a CGT asset you own. You make a capital gain if your proceeds from the disposal of a CGT asset are greater than what it cost you and you make a capital loss if you dispose of an asset for less than what it cost you. A net capital gain forms part of your assessable income while a net capital loss can only be deducted from a future capital gain. If a capital loss cannot be deducted in a particular year, it can be carried forward to a future year or years until it is able to be deducted. Taxation Determination TD 2014/26 Income tax: is bitcoin a ‘CGT asset’ for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 ? explains that Bitcoin, and by extension cryptocurrency in general, is a CGT asset. The disposal of cryptocurrency that is not part of a business or commercial transaction will give rise to CGT disposal event A1 under subsection 104-10(1) of the Income Tax Assessment Act 1997 . A capital gain or loss is worked out at the time of disposal. In your case, you were looking to hold the cryptocurrency you purchased in order to achieve an increase in value over time. Consequently, the cryptocurrency was acquired and held for the purpose of investment and the losses you incurred are capital in nature.