Private ruling: Capital gains tax - cryptocurrency
Date of advice: 7 April 2026
Published: 29 June 2026

Ruling: Q1: Is the settlement payment by the Fund to the cryptocurrency lender, included in the cost base of the Fund's cryptocurrency under subsection 110-25(6) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Did the disposal of the cryptocurrency rewards in the Fund's account, under the Liquid Cryptocurrency Setoff Payment option to partly satisfy the settlement payment amount, trigger CGT event A1 under section 104-10 of the ITAA 1997? | A2: Yes This private ruling applies for the following periods: • Year ended 30 June 2025 • Year ending 30 June 2026

Relevant facts and circumstances: The Fund is a self-managed superannuation fund. The Fund opened an account with a US based cryptocurrency lender (Lender). The Fund deposited Bitcoin and Ether into an account with the Lender. The Fund did not execute any trades or swaps in the account. The Fund earned reward tokens from the Lender, which was a mixture of Bitcoin, USD Coin and Ether. The Fund did not withdraw any of these reward tokens. The Fund subsequently withdrew all cryptocurrency held in its account. The Lender filed for Chapter 11 Bankruptcy. The US Bankruptcy Court approved the Lender's Chapter 11 reorganisation plan, which gave the Administrator the authority to pursue certain legal claims on its behalf, including claims to recover preferential transfers (clawback claims). The Administrator commenced an adversary proceeding against the Fund, alleging that the Fund, as an account holder with the Lender, withdrew assets from the Lender's platform within the 90-day preference period before bankruptcy, and that under sections 547 and 550 of the Bankruptcy Code, the Administrator is entitled to recover from the Fund the value of all assets the Fund withdrew during the preference period. The Lender subsequently filed a settlement agreement with the Fund. The Fund signed the Settlement Agreement to pay the Lender a settlement amount - solely to avoid the risks of litigation and further costs, and without admission of liability. The settlement amount consisted of the following: • USD $xxx - Cash payment. • USD $xxx - The remaining reward tokens earned in the Fund's account prior to the Lender filing for bankruptcy.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section108-5 | Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Section 116-20 | Income Tax Assessment Act 1997 Division 115

Reasons for decision: Summary: The settlement payment was incurred to avoid the risks of litigation and the incurrence of further costs; it was not incurred to preserve the Fund's legal rights to the cryptocurrency or to defend its ownership of the cryptocurrency. Therefore, the settlement payment will not form part of the cost base of the cryptocurrency pursuant to subsection 110-25(6) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 110-25 of the ITAA 1997 provides that there are five elements of the cost base. Subsection 110-25(6) deals specifically with the fifth element of the cost base. It provides that the fifth element is capital expenditure that you incurred to establish, preserve or defend your title to the asset, or a right over the asset. As stated in Cooper, GS 1992, Capital gains tax, 2nd edn, Butterworths, Sydney, p. 87: Defending the taxpayer's title or right seems to refer to action taken when the title or right is put in dispute. The most obvious example of this is where someone else lays a claim to the asset in whole or in part and institutes legal proceedings to establish that claim. Costs of the taxpayer in defending those proceedings would be costs in defending the taxpayer's title. | Detailed Reasoning - Application to your situation: A settlement agreement was entered into and agreed between the Fund and the Lender. Under this agreement, the Fund agreed to make the settlement payment to avoid litigation against it and to prevent the incurrence of further costs associated with the US bankruptcy clawback proceedings. The Fund agreed to pay the Lender an agreed amount, with the Fund transferring USD $xxx to the Lender and the balance paid in reward tokens held in the Fund's account. The requirements of the fifth element of the CGT cost base are not satisfied, as the expenditure was not incurred to establish, preserve or defend the Fund's title to the cryptocurrency. Therefore, pursuant to subsection 110-25(6) of the ITAA 1997, the settlement payment incurred by the Fund does not form part of the cost base of the cryptocurrency disposed of. While the settlement payment constitutes capital expenditure, it does not give rise to any CGT consequences. | Detailed Reasoning - Question 2: Did the disposal of the cryptocurrency rewards in the Fund's account, under the Liquid Cryptocurrency Setoff Payment option to partly satisfy the settlement payment amount, trigger CGT event A1 under section 104-10 of the ITAA 1997? | Summary: The disposal of the cryptocurrency triggered a CGT event A1 when it was used to partly offset the settlement payment amount. Where the cryptocurrency has been held for more than 12 months, a 33⅓% discount on any capital gain will apply if the fund is a complying superannuation fund. | Detailed Reasoning - Detailed reasoning: Subsection 104-10(1) of the ITAA 1997 provides that CGT event A1 happens if an entity disposes of a CGT asset. A 'disposal', as defined in subsection 104-10(2), occurs when there is a change of ownership from one entity to another. A 'CGT asset', as provided in section 108-5, is: • any kind of property, or • a legal or equitable right that is not property. In accordance with subsection 116-20(1) of the ITAA 1997, the capital proceeds from a CGT event are the total of the money the taxpayer receives, or is entitled to receive, and the market value of any other property received (or entitled to be received), in respect of the disposal. Under Division 115 of the ITAA 1997, an entity may be eligible for a discount capital gain where they meet the relevant criteria, including holding the CGT asset for more than 12 months. Application to your situation /p> When the remaining cryptocurrency was used to offset the settlement claim, this constituted a disposal and triggered a CGT event for the Fund. The most appropriate CGT event would be CGT event A1 based on the facts. Any capital gain made on the disposal of the cryptocurrency by the Fund will be reduced by 33⅓% (one-third) where the fund is a complying superannuation fund and has held the cryptocurrency for more than 12 months. The settlement payment was incurred to avoid the risks of litigation and the incurrence of further costs; it was not incurred to preserve the Fund's legal rights to the cryptocurrency or to defend its ownership of the cryptocurrency. Therefore, the settlement payment amount will not form part of the cost base of the cryptocurrency pursuant to subsection 110-25(6) of the ITAA 1997. The disposal of the cryptocurrency triggered a CGT event A1 when it was used to partly offset the settlement payment amount. Where the cryptocurrency has been held for more than 12 months, a 33⅓% discount on any capital gain will apply if the fund is a complying superannuation fund.

Question 1: Is the settlement payment by the Fund to the Lender, included in the cost base of the cryptocurrency under subsection 110-25(6) of the ITAA 1997?