Private ruling: Income and capital
Date of advice: 27 September 2022
Published: December 2022
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 June 20XX

Ruling: Q1: Will the disposal of the crypto assets result in a CGT event? | A1: Yes | Q2: Will the personal use asset rules in section 108-20 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the disposal of crypto assets acquired for less than $10,000, used for personal use, and not used to produce assessable income? | A2: Yes | Q3: Will a capital gain or loss be made on the disposal of crypto assets where they are not a personal use asset under section 104-10 of the ITAA 1997? | A3: Yes | Q4: Will the gains from renting crypto assets be ordinary income under section 6-5 of the ITAA 1997? | A4: Yes | Q5: Will the acquisition of crypto assets from staking be ordinary income under section 6-5 of the ITAA 1997? | A5: Yes

Relevant facts and circumstances: In June 20XX, you commenced playing an online game (the Game). The game allows players several avenues to play and collect crypto assets. Each asset in this game is a non-fungible token (NFT) and the official in-game currency is a cryptocurrency. Players can also acquire other crypto assets, which are used for the games inbuilt staking mechanism. You own crypto assets which you have acquired from playing the Game. The majority of these assets have been owned since you started playing. You play the Game for your own enjoyment. Staking Some special offers, promotions, and bonuses can only be accessed by using crypto assets earnt from staking other crypto assets. You have staked crypto assets to earn enhanced crypto assets. You have used crypto assets to buy enhanced crypto assets during presales and for limited edition crypto assets. Renting In 20XX, you commenced renting your crypto assets to another player. You and the other player split the rewards earnt from using your crypto assets 50/50. The Game facilitates the rental of crypto assets to obtain additional crypto assets. When a player uses another player's crypto asset, the additional crypto asset is automatically moved to the owners wallet. You put crypto assets that you are not playing with into the rental system facilitated by the Game to receive additional crypto assets which you use to buy more crypto assets.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 108-10 | Income Tax Assessment Act 1997 section 108-17 | Income Tax Assessment Act 1997 section 108-20 | Income Tax Assessment Act 1997 section 108-30 | Income Tax Assessment Act 1997 section 109-5 | Income Tax Assessment Act 1997 section 112-20 | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 section 118-10 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: Under subsection 108-5(1) of the ITAA 1997, a CGT asset is any kind of property or a legal or equitable right that is not property. Paragraph 1 of Taxation Determination TD 2014/26 Income tax: is Cryptocurrency a 'CGT asset' for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) ? (TD 2014/26) states that bitcoin is a CGT asset for the purposes of subsection 108-5(1) of the ITAA 1997. Although this Taxation Determination is about Bitcoin, it also applies to other crypto assets. CGT event A1 under section 104-10 of the ITAA 1997 happens when you dispose of a CGT asset. A transaction involving a disposal takes place when you do any of the following: • sell a crypto asset • gift a crypto asset • trade or exchange a crypto asset for another crypto asset • convert a crypto asset to Australian or foreign currency (otherwise known as 'fiat currency') • buy goods or services with a crypto asset. If there is a CGT event, you may make either a capital gain or capital loss on the disposal of the crypto asset. A capital gain is made if your capital proceeds exceed the CGT asset's cost base and will be subject to CGT. | Detailed Reasoning - Application to your circumstances: The crypto assets you use to play the Game are CGT assets and a CGT event will happen when you dispose of them. | Detailed Reasoning - Question 2: Under section 108-20 of the Income Tax Assessment Act 1997 (ITAA 1997), capital losses made from personal use assets are disregarded. Personal use assets are defined under subsection 108-20(2) of the ITAA 1997 as: (a) a CGT asset (except a collectable) that is used or kept mainly for your (or your associate's) personal use or enjoyment or; (b) an option or right to acquire a CGT asset of that kind; or (c) a debt arising from a CGT event in which the CGT asset the subject of the event was one covered by paragraph (a); or (d) a debt arising other than: (e) in the course of gaining or producing your assessable income; or (f) from your carrying on a business. You may also disregard capital gains you make from personal use assets where you acquired the asset for $10,000 or less (see subsection 118-10(3) of the ITAA 1997). Whether or not a crypto asset is used or kept mainly for personal use or enjoyment will depend on the particular facts and circumstances of each case. In most cases, an intangible asset such as a crypto asset would not be a personal use asset. An exception to this may be where an intangible asset is used to directly acquire an asset held mainly for personal use and enjoyment. TD 2014/26 provides some examples of where Bitcoin (a type of crypto asset) could be a personal use asset, including at paragraph 20 which states: An example of where bitcoin would be considered to be a personal use asset is where an individual taxpayer purchased bitcoin from a Bitcoin exchange and uses the bitcoin to make online purchases for their personal needs, for example clothing or music. If the bitcoin were instead purchased to facilitate the purchase of income producing investments, they would not be personal use assets. During the period of ownership, the way you keep or use crypto assets may change. The relevant time for determining if a crypto asset is a personal use asset is when you dispose of it. Section 108-20 of the ITAA 1997 does not apply to collectables. Subsection 108-10(2) of the ITAA 1997, states that a collectable is artwork, jewellery, an antique, or a coin or medallion, a rare folio, manuscript or book, or a postage stamp or first day cover, that is used or kept mainly for your personal use or enjoyment. | Detailed Reasoning - Application to your circumstances: You acquired crypto assets for $10,000 or less by playing the Game for your own enjoyment. The crypto assets are CGT assets and are not a collectable as defined in subsection 108-10(2) of the ITAA 1997. You used some of these crypto assets to purchase additional crypto assets used to play the game for your own personal use. Where these crypto assets were not used to produce assessable income and were used or kept mainly for your own personal use or enjoyment, then they will be treated as a personal use asset and you may disregard capital losses made on their disposal (section 108-20 of the ITAA 1997). You may also disregard capital gains you make from these assets (see subsection 118-10(3) of the ITAA 1997). This will also apply to when you dispose of the relevant crypto assets themselves. | Detailed Reasoning - Application to your circumstances: Where you have used a crypto asset to produce assessable income or has been used to acquire another crypto asset which is not a personal use asset, then the crypto asset has not mainly been used or kept for your personal use and enjoyment and will not be a personal use asset under section 104-10 of the ITAA 1997. Where the personal use asset rules do not apply, a capital gain or loss will arise from a CGT event involving the disposal of your crypto assets. | Detailed Reasoning - Questions 4 and 5: Section 6-5 of the ITAA 1997 states that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Subsection 6-5(4) of the ITAA 1997 clarifies that in working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct. Ordinary income has generally been held to include three categories: namely, income from rendering personal services, income from property and income from carrying on a business. Section 21 of the Income Tax Assessment Act 1936 (ITAA 1936) addresses the situation where consideration is received other than in cash. Where, upon a transaction, any consideration is paid or given other than in cash, the market value of that consideration shall, for the purposes of this Act, be deemed to have been paid or given. | Detailed Reasoning - Question 4: You rent your crypto assets to other players. The rewards you receive from renting these assets are assessable to you as ordinary income (section 6-5 of the ITAA 1997). The amount of assessable income is determined by calculating the market value of the crypto asset in Australian dollars at the time you received it (section 21 of ITAA 1936). | Detailed Reasoning - Question 5: You earn rewards from staking crypto assets. When you earn rewards from staking crypto assets, then these rewards are assessable to you as ordinary income (section 6-5 of the ITAA 1997). The amount of assessable income is determined by calculating the market value of the crypto asset in Australian dollars at the time it is received (section 21 of ITAA 1936). Where your staking rewards are locked to a crypto wallet or are otherwise inaccessible to you unless certain conditions are met, you will not be taken to have received the staking reward until you are able to withdraw and/or access the reward (subsection 6-5(4) of the ITAA 1997).