Private ruling: CGT - cryptocurrency
Date of advice: 24 February 2025
Published: 7 April 2025
Ruling period: Income tax year ending 30 June 20YY | Income tax year ending 30 June 20YY | Income tax year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Cryptocurrency that may be transferred using the private digital keys in your joint wallet be treated as held as tenants in common under section 108-7 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will there be a capital gain or loss under subsection 104-10(1) of the ITAA 1997 for Person B if Person A sells their holding of cryptocurrency? | A2: No. | Q3: Will there be a capital gain or loss under subsection 104-10(1) of the ITAA 1997 for Person B or Person A if they create separate wallets to hold the private digital keys for their respective holdings of cryptocurrency? | A3: No.

Relevant facts and circumstances: Person A and Person B are married. In late 20YY, they sold their jointly owned property to purchase cryptocurrency. Since that time they have continued to put their joint savings into cryptocurrency. For the last 10-15 years Person A has been working as an employee. They recently left their job and decided to set up their own business. They have re-registered their ABN effective from XX October 2024. In order to obtain funds for the business, Person A needs to sell some cryptocurrency.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 108-7 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(2)

Reasons for decision: Summary: The cryptocurrency that may be transferred using the private digital keys in your joint wallet will not be treated as held as tenants in common under section 108-7 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 108-7 of the Income Tax Assessment Act 1997 (ITAA 1997) states individuals who owns a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common. Paragraphs 14 and 15 of Taxation Determination TD 2014/25 Income tax: is bitcoin a 'foreign currency' for the purposes of Division 775 of the Income Tax Assessment Act 1997? (TD 2014/25) explains: 14. to transfer bitcoin, a person creates a transaction message with the number of bitcoin to be transferred and signs the transaction with their private key. Those bitcoin are associated with the person's public key. The transaction is then broadcast to the Bitcoin network for validation through the Bitcoin mining process. Once validated they are added to the 'block chain', which is a public global ledger of all Bitcoin transactions. 15. A bitcoin is only accessible by the person in possession of the private key that relates to the Bitcoin address associated with that person's bitcoin holdings. Accordingly, a bitcoin consists not just of the numerical amount (or balance) of bitcoin and the Bitcoin address to which they are associated, but also the related private key that allows the holder to do anything with those bitcoin. A cryptocurrency wallet holds the private digital key that authorises a cryptocurrency transaction. A shared wallet contains two such private digital keys each of which is known only to one person. Cryptocurrency exchanges have historically not had functionality that allows for registration of a joint account such that cryptocurrency may be purchased in joint names. Rather, functionality has only existed that allows for one person to register with an exchange and purchase cryptocurrency in their name using the account created. The exchange account provides the functionality to purchase the cryptocurrency and for the account holder to deposit the funds necessary for the transaction to take place. The acquired cryptocurrency comes with one private digital key but may be made subject to a 2nd private digital key using a joint wallet. That is, multiple persons can then transfer the cryptocurrency that was acquired by the person who made the purchase using their exchange account. However, it is well understood that ownership may sit with a party who provides funds for the purchase of an item of property (notwithstanding that the purchase was undertaken for them by someone else). Where cryptocurrency is purchased using funds provided by another party and the person who contributed the funds immediately holds a private digital key by which they can deal with that cryptocurrency absolutely, then that cryptocurrency is immediately under their control and their property (and a CGT asset). | Detailed Reasoning - Application to your circumstances: Cryptocurrency that is acquired by Person B and Person A through Person A's exchange account will be separate CGT assets of Person B and Person A according to who it was that contributed the funds that were used for the purchase. A reasonable allocation between Person B and Person A at the time of each purchase on the basis of the funds contributed will be acceptable. | Summary: If cryptocurrency is sold for which Person A originally provided the funds for purchase, it will be Person A that has the capital gain or loss under CGT event A1 and there will be no CGT consequences for Person B under section 104-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 102-20 of the ITAA 1997 provides that you can only make a capital gain or a capital loss if a CGT event happens. Division 104 sets out the CGT events. Subsection 104-10(1) of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset. Subsection 104-10(2) of the ITAA 1997 provides that you dispose of a CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law. Paragraph 15 of Taxation Determination 2014/26 Income tax: is bitcoin a 'CGT asset' for the purposes of subsection 108-5(1) of the ITAA 1997? explains: 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). | Detailed Reasoning - Application to your circumstances: If cryptocurrency is sold for which Person A contributed the funds for purchase, it will be Person A that has the capital gain or loss under CGT event A1 and there will be no CGT consequences for Person B under section 104-10 of the ITAA 1997 in respect of that cryptocurrency. However, there will be CGT consequences for Person B when cryptocurrency is sold that was originally acquired by funds Person B contributed. | Summary: There is no change in ownership of the cryptocurrency, meaning there is no CGT event under subsection 104-10(1) of the ITAA 1997 for either Person A or Person B if they create separate wallets to hold the private digital keys for their respective holdings of cryptocurrency. | Detailed Reasoning - Detailed reasoning: As already explained, a digital wallet contains the private digital key to transfer the cryptocurrency. If Person B and Person A alter the private digital key(s) that may transfer their respective holdings of cryptocurrency (that is, create separate wallets holding separate digital keys), then there is no change in ownership of the underlying cryptocurrency meaning there is no CGT event A1 arising under subsection 104-10(1) of the ITAA 1997. | Detailed Reasoning - Application to your circumstances: There is no change in ownership of the cryptocurrency meaning no disposal has occurred. Therefore, there will be no CGT consequences under subsection 104-10(1) of the ITAA 1997 for either Person A or Person B if they create separate wallets to hold the private digital keys for their respective holdings of cryptocurrency.