Private ruling: Cryptocurrency
Date of advice: 31 August 2023
Published: 9 October 2023
Ruling period: Year ended 30 June 202X
Date scheme commenced: 1 July 202x

Ruling: Q1: Is the disposal of your cryptocurrency assets - bitcoin, a CGT event A1 under section 104-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Are the rewards from YieldNodes ordinary income under section 6-5 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: You are an investor and not a trader. You have transferred your bitcoin (BTC) from your account and invested them to the YieldNodes platform. You have previously converted your YieldNodes holdings to a fiat currency once to see whether the transaction would process. However, you have not converted further holdings to fiat currency since. You reinvest your earnings back into YieldNodes. You do not own or maintain a node yourself. Funds are held on the platform and not in a personal wallet. A personal wallet is used when an investor chooses to withdraw their earnings. The amount withdrawn from the YieldNodes are converted into a second, separate digital token of your choice, on your platform of choice. The second platform then converts that second digital token into fiat currency. You advised that the deposits that you have made have been frozen and are inaccessible. The platform has imposed restrictions on withdrawal of transactions such that investors must apply to the platform before the 15 th day of any given month. Withdrawals are paid out on the 8 th day of the following month. When staking, you agreed to lock up the tokens for a fixed period of time. Your funds became inaccessible during the relevant period. You have been unable to withdraw your holdings.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-5

Reasons for decision: Summary: A CGT event (A1) under section 104-10 of the ITAA 1997 happened when you disposed of your cryptocurrency assets. | Detailed Reasoning - Detailed reasoning: Section 102-20 of the ITAA 1997 states that a capital gain or capital loss is made only if a CGT event happens to a CGT asset. All assets acquired since CGT started (20 September 1985) are subject to CGT unless specifically excluded. Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1, which happens if there is a disposal of a CGT asset. Subsection 104-10(2) defines a disposal as: You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. 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 provides that bitcoin and other cryptocurrency with similar characteristics to bitcoin, is a CGT asset as opposed to cash or currency. At paragraphs 15 and 16: 15. The disposal of bitcoin to a third party gives rise to CGT event A1 under subsection 104-10(1). A taxpayer will make a capital gain from CGT event A1 if the capital proceeds from the disposal of the bitcoin are more than the bitcoin's cost base. The capital proceeds from the disposal of the bitcoin are, in accordance with subsection 116-20(1), the money or the market value of any other property received (or entitled to be received) by the taxpayer in respect of the disposal. The money paid or the market value of any other property the taxpayer gave in respect of acquiring the bitcoin will be included in the cost base of the bitcoin in accordance with subsection 110-25(2). 16. However, section 118-20 reduces any capital gain made by a taxpayer by an amount that is included in the taxpayer's assessable income under another provision of the tax law, for example, ordinary income under section 6-5. When considering the disposal of an interest in a CGT asset, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the asset. A transaction involving a disposal of a cryptocurrency asset takes place when you do any of the following: • sell a crypto asset • gift a crypto asset • trade, exchange or swap 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. In your case, when you transferred your BTC from your account to the YieldNodes platform, you no longer had the BTC in your wallet or had direct access to, or control over it. As a result, CGT event A1, under section 104-10 of the ITAA 1997, has happened on the disposal of your BTC. | Summary: Rewards from Yieldnodes are assessable as ordinary income under section 6-5 of the ITAA 1997, when they are derived. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(1) of the ITAA 1997 states that your assessable income includes income according to ordinary concepts, which is called ordinary income. Subsection 6-5(2) 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 states 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. Chapter 4 of the Explanatory Memorandum to the ITAA 1997 provides that amounts received still need to have all the attributes of ordinary or statutory income before it is treated as such. You still need to have 'derived' the income. 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. Other characteristics of income that have evolved from case law include receipts that: (a) are earned (b) are expected (c) are relied upon, and (d) have an element of periodicity, recurrence or regularity. If the income has characteristics of the four listed above then it can be considered as ordinary income under section 6-5 of the ITAA 1997. In your case, where your funds, contributed through the disposal of BTC from your account to the YieldNodes platform, were invested and rewards were received as a return on your investment, the receipt is ordinary income under section 6-5 of the ITAA 1997. However, where the funds are locked to a trading platform, or inaccessible to you until a condition of release is met, the funds will not be derived until the condition of release is met and the funds are accessible or can be dealt with in any way, on your behalf, or as you direct. The case Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108, 154-5, noted in the assessment of income the object is to discover what gains have during the period of account 'come home' to the taxpayer.This establishes that for a receipt of ordinary income to be assessable under section 6-5 of the ITAA 1997 it must 'come home' to the taxpayer. Although rewards were credited to your account, you are not able to access them, or have them applied or dealt with in any way on your behalf or as you directed. You were notified that your account was locked in October 2022 and that no withdrawals would be possible at all. Although, YieldNodes have advised you that they are still crediting your account with rewards and when they have restructured to YieldNodes Pro they will issue you with NFTs that carry a subscription right to shares in assets, you do not know if this is legitimate. Until this happens, the funds are not accessible to you and you cannot otherwise deal with them in any way. Since the rewards have not 'come home' to you they have not yet been derived. The rewards will be assessable as ordinary income under subsection 6-5(4) of the ITAA 1997, as soon as they are applied or can be dealt with in any way, on your behalf or as you direct.