Private ruling: Am I in business
Date of advice: 27 August 2025
Published: 27 October 2025
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are the proceeds from your digital currency transactions assessable as business income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: You are employed fulltime in the financial services industry. Your digital currency activity was operated as a separate activity, with the intention to transition to full-time trading subject to profitability. You commenced your digital currency activity on 1 July 20YY. You conduct your digital currency activity as a sole trader. You had a business plan that included structured short-term, mid-term and long-term objectives using different trading strategies. You invested funds to allow you to engage in this digital currency activity. Funds were regularly added throughout the course of the relevant financial years to maintain trading liquidity and adjust position sizing. Throughout the years you conducted your digital currency trading activity your total trades varied from approximately xxx to xxx per year and varied each month from approximately xxx to xxx trades. You have traded using different platforms. Your trades were short term, with less than 12 months between the purchase and sale time of digital currencies. You kept records of all your trades, asset balances, CGT summaries and income events using xxx. You have no formal trading qualifications. You spent xx-xx hours per week on your trading activities including market tracking, research using paid and free platforms, pattern recognition and trade planning. Your risk mitigation strategy was actively managed through: • Defined stop-loss orders (max 10% capital per trade) • 1:4 minimum risk-to-reward ratios • Analysis of volatility, support/resistance, and momentum indicators (RSI, MACD, ADX, SMA crossovers) • Ongoing review of performance and strategic refinement • Risk controls were documented and reviewed regularly as part of my trading process. You are subscribed to several institutions and research groups, both paid and unpaid, to research and study digital currency market and to determine potential trades. You made losses in your first 2 financial years of activity and made a small profit in the financial year you ceased your activity.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 102-10 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: The income you have received from digital currencies transactions is not considered assessable as business income. Any income or losses would be considered under the capital gains provisions. | Detailed Reasoning - Detailed reasoning: Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. The question of whether a business is being carried on is a question of fact and degree and is determined on a year-by-year basis. If your activities do not amount to the carrying on of a business in one income year, that will not prevent them doing so in a later income year. Similarly, when the extent of an activity falls below what is required for that activity to be commercially viable, the activity may no longer constitute the carrying on of a business. Generally, where you carry out business activities for the purpose of earning income from buying and selling digital currency you are considered to be in the business of digital currency trading - similar to the conditions that apply between being a share investor and a share trader. Your digital currency is treated as trading stock with the income from your sales included in your assessable income under section 6-5 of the ITAA 1997, and the expenses incurred to acquire the digital currency are deductible under section 8-1 of the ITAA 1997. Other expenses incurred in the course of carrying on the business would also be deductible under relevant provisions of the Income Tax Assessment Act 1936 or the ITAA 1997. However, as with shares, if your digital currency activities are insufficient to be carrying on a business you will be regarded as an investor. Your digital currency would be treated as capital gains tax (CGT) assets with any gains from the disposal of the digital currency included in your assessable income as a capital gain (section 102-5 of the ITAA 1997) and any losses sustained from the disposals would be capital losses (section 102-10 of the ITAA 1997). The Commissioner's view on what constitutes a business is contained in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? which lists the factors that are considered important in determining the question of whether a business is being carried on. Paragraph 13 of TR 97/11 provides that the courts have held that the following indicators are relevant: • 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. No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression. In the case of buying and selling digital currency, repetition and regularity are considered to be important indicators on whether or not a business is being carried on, with the size and scale of the activity being supporting factors. In your case, in the relevant financial years you conducted your digital currency transaction activity, you made a total of approximately 200 to 1500 trades and your buying and selling of digital currency varied from 0 to 1200 per month throughout the 3-year period. There is no identifiable pattern in the buying or selling of digital currency. There is also no pattern regarding the time in which the digital currencies are held before selling. Although you had a few transactions per month which could be suggestive that a business of digital currency trading was being carried on, the repetition and regularity of your trading falls short of what would be expected of a digital currency business. When looking at the indicators of carrying on a business there is the size, scale and permanency of the activity to consider. It has been established that your activity size and scale is limited overall. Regarding the permanency of the activity, you had a downturn in trading and an increase in selling in the 20YY-YY and 20YY-YY financial years. Before starting your digital currency activity, you have only completed research and reading but have not sought guidance from a third-party professional to assist in providing knowledge or advice. You did have a business plan and strategy in place of short-term, mid-term and long-term swing trading while also using momentum trading and later expanding into futures trading. Your short-term goal was to start by gaining experience in swing trading over a six-month period and grow your portfolio by 15%. The mid-term goal was to focus on the following two years and expand trading to incorporate momentum trading with a target of 40% growth. Your activities over the first 2 years resulted in losses. You then decided to wind up your trading activities in the 20YY-YY financial year never reaching your long-term goals. To fund this activity, you invested a sum of money. You have not used commercial business financing. You have not established a pattern of buying and selling digital currencies and your transactions are not performed in a systematic manner. Although you spent approximately 15-20 hours each week on digital based activities, either researching or actively engaging in the digital market and kept records of your transactions, your situation is not indicative of a business of digital currency trading. Another factor when looking at if the activity is considered a business is if the activity is planned, organised and carried on in a businesslike manner. When looking at the above factors it would show that the activity was carried on in an ad-hoc basis whilst you also maintained full time employment. While you have entered the activity with the purpose of making a profit the overall outcome of your activity resulted in losses for the first two years, with only producing a small profit in the financial year in which you ceased your trading activities. It is considered that you were not carrying on a business as a digital currency trader during the relevant financial years. Your trading activities were not repetitive or regular, nor of the size and scale of businesses in this industry. You would be regarded as an investor rather than a trader. As you were not carrying on a business any profit from your digital currency activity would not be assessable under section 6-5 of the ITAA 1997. The disposal of your digital assets will be a CGT event A1 and any gains you have made on the sale of those shares will be a capital gain and assessable under section 102-5(1) of the ITAA 1997.