Private ruling: TOFA - Division 230 ITAA1997 - cryptocurrency arbitrage function and investments and bullion investments
Date of advice: 12 April 2022
Published: May 2022
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q2: Will the TOFA rules apply to cryptocurrency held by the company other than for trading under the arbitrage function? | A1: No | Q3: Will the TOFA rules apply to cryptocurrency held by the discretionary trust? | A2: No | Q4: Will the TOFA rules apply to gold and silver bullion held as investments on the company's balance sheet? | A3: No | Q5: Will the TOFA rules apply to the individual taxpayer when running the arbitrage function personally? | A4: No | Q6: If the answer to any of Questions 1 through 5 is 'yes', will the realisation method be the most appropriate for determining TOFA gains and losses? | A5: Not applicable because the answer to Questions 1 through 5 is 'no'. | Q7: If the answer to Question 1 is 'yes', will the TOFA gain be the additional cryptocurrency generated as a result of the arbitrage function, with ordinary cryptocurrency disposals being sales revenue and ordinary cryptocurrency acquisitions being purchases? | A6: Not applicable because the answer to Question 1 is 'no'.

Relevant facts and circumstances: Background to the arbitrage trading arrangements 1. An individual taxpayer developed a cryptocurrency trading bot, taking advantage of arbitrage opportunities present in "digital liquidity pools". 2. The bot sends a transaction to one of its smart contracts, which consolidates multiple trades into one transaction. 3. An example of such a transaction would be Coin A>Coin B>Coin C>back to Coin A. This represents one single transaction on the smart contract. 4. The effect of the transaction is an increase in the balance of the respective coin that was the subject of the arbitrage transaction. For example, the balance of Coin A at the conclusion of the transaction is higher than the balance of Coin A that is sitting in the smart contract initially - that is, the transaction starts with an amount of x of Coin A and ends with x+dx of Coin A. 5. The individual taxpayer initially commenced trading activities during the 20XX income year under their personal name. However, the individual now conducts trading activities through a company. The company is wholly owned by a discretionary trust. The individual taxpayer transferred cryptocurrency trading stock from their own name to the company later during the 20XX income year. The individual didn't transfer intellectual property rights. 6. The bot generates a substantial level of turnover. Each individual transaction entered into by the trading bot doesn't hold substantial value and many transactions only yield a small profit. However, there are multiple thousands of trades undertaken each day. (This edited version has redacted information about the company's turnover for the relevant income years). Transactions, trades and turnover 7. The number of transactions each day are variable and depend on the activity on the network. • Many transactions are sent, but not all succeed. The client estimates more than x% of transactions fail under the current version of the bot. • The current version of the bot sends many thousands of transactions each day. • There were several thousand successful trades (but a fraction of attempted transactions) over a recent 7-day period. 8. (This paragraph was about the trading bot's turnover. It has been redacted for privacy concerns.) 9. ((This paragraph was about the client's turnover estimates for relevant periods. It has been redacted for privacy concerns.) Table 1: turnover estimates for relevant periods (redacted for privacy concerns) Month Turnover (details redacted) (details redacted) Trading bot and uncertainty 10. The trading bot enters transactions independently of any human oversight. Once the arbitrage opportunity is identified the bot sends a transaction to a smart contract which consolidates multiple trades and is completed in a single smart contract transaction. 11. Once the trading bot sends a transaction to the smart contract, the exchanges from CoinA>CoinB>CoinC>Coin A are all completed in a single smart contract transaction on the same day. Once the arbitrage transaction is completed the cryptocurrency is delivered immediately. 12. Cryptocurrency prices are extremely volatile, so the amounts/values of cryptocurrency exchanged upon entering into the execution of the smart contract can vary from time to time. 13. The bot is able to calculate the expected profit for a given trade. However, there are several factors which can interfere with the trade, and cause the transaction either to fail, or to return a different profit/loss than expected. The primary factor is competition from other arbitrage traders. If another arbitrage trader is faster, their transaction will be executed before the taxpayer's, which usually results in the taxpayer's attempted trade failing. Alternatively, the trade may return a smaller profit than expected. It's also possible for ordinary trading activity to affect the state of the network, and alter the returns on a trade. 14. The exchange rates within pools can change between the time the bot sends the transaction and it being executed. This usually results in the transaction failing. Exchanges used by the arbitrage function 15. All the cryptocurrency exchanges the company uses for the arbitrage trades are decentralised. The exchanges are smart contracts operating on the blockchain. They use an automated market making algorithm to facilitate trades. 16. The company currently uses many different exchanges. 17. The arbitrage function uses a select number of starting coins for an arbitrage trade, but may swap them with a large and unverifiable number of intermediate coins. In the example used in paragraph 3, Coin A is a starting coin, and Coins B and C are intermediate coins. Starting coins are usually determined by which coin a network uses to pay fees in. 18. The company currently uses x, but has used y cryptocurrency types in total as a starting coin for an arbitrage trade. 19. It's impractical to list or keep track of intermediate coins. The arbitrage software is able to identify and use completely new coins shortly after they are added to a decentralised exchange. The only common feature of these coins is that they are all in liquidity pools on decentralised exchanges and can be traded. 20. Successful arbitrage trades result in an increased coin balance of the starting coin traded. The company allows these increases to accumulate. It trades them from time to time for other cryptocurrencies, or sells them for stablecoins [1] . Cash is usually acquired by selling stablecoins on a centralised exchange. These non-arbitrage trades are much less frequent, and arbitrage profits may be held for some time, perhaps months, before being traded for something else. Other cryptocurrency holdings 21. The individual taxpayer also transferred additional cryptocurrency from their personal name to the discretionary trust. The individual taxpayer transferred a significant number of tokens for a single cryptocurrency type (Coin X) on a single day during the 20XX income year. The parties determined that this was an arm's length price using the daily close price for Coin X. 22. Other cryptocurrency trades are made separately to the bot activity. The other cryptocurrency trades are conducted on centralised and decentralised exchanges. 23. The trustee's intension is to hold these tokens long-term for capital growth. None of the tokens have been sold. If the trust does make any trades, they will likely be made on an Australian blockchain exchange. 24. To clarify, the company doesn't currently make or hold any long-term cryptocurrency investments. Gold and silver bullion 25. The company invests in gold and silver bullions, making purchases in the 20XX financial year. It intends to hold these bullions as long-term investments, and will record them as investments on its balance sheet. 26. The company holds less than x oz of silver and less than y oz of gold. They were purchased during the 20XX income year. No bullion has been sold. All bullion holdings were acquired through commodity markets at market prices. Financial reporting 27. Special purpose financial reports are prepared in accordance with the Australian Accounting Standards for both the company and trust as they are solely for the individual taxpayer's use. 28. (This paragraph has been partly redacted for privacy concerns because it contained details about the company's turnover, value of assets, and number of employees). From the 20XX financial year onwards the company will still produce financial statements as special purpose financial reports. 29. Financial statements for both the company and trust aren't audited as regulatory standards don't require this. 30. The individual taxpayer won't prepare any financial statements as they are no longer running any business. Accounting for cryptocurrency 31. If the TOFA rules don't apply to the company's arbitrage activities, it will present the cryptocurrency holdings in its financial statements as inventory in accordance with AASB 102 - Inventories. 32. The cryptocurrency trading stock is measured at the lower of cost and net realisable value. Cost of inventory is determined using the first-in-first-out basis and is net of any rebates and discounts received. Net realisable value is estimated using the most reliable evidence available at the reporting date and inventory is written down through an obsolescence provision if necessary. 33. If the TOFA rules don't extend to the discretionary trust's investing activities, it will present the cryptocurrency holdings in its financial statements as inventory in accordance with AASB 138 - Intangible Assets. 34. The cryptocurrency held on capital account is measured at cost less any accumulated amortisation and impairment*. The cost is determined by how much was paid to acquire the cryptocurrency assets less any brokerage/transaction costs. * In most cases no amortisation is expected for cryptocurrencies.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 230-45 | Income Tax Assessment Act 1997 section 230-50 | Income Tax Assessment Act 1997 section 230-350 | Income Tax Assessment Act 1997 section 230-450 | Income Tax Assessment Act 1997 section 230-455 | Income Tax Assessment Act 1997 section 230-530 | Income Tax Assessment Act 1997 section 820-930 | Income Tax Assessment Act 1997 section 974-70 | Income Tax Assessment Act 1997 section 974-75 | Income Tax Assessment Act 1997 section 974-160 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: In these reasons, all legislative provisions are in the Income Tax Assessment Act 1997. | Detailed Reasoning - Question 1: Will the TOFA rules apply to cryptocurrency transactions entered by the company using the arbitrage function? Summary 35. No. The TOFA rules won't apply to transactions entered using the arbitrage function. • We think these transactions will be financial arrangements under section 230-45, because they create cash settlable rights and obligations under paragraph 230-45(2)(e). • However, the exception for short-term non-money amounts in section 230-450 will apply to prevent the TOFA rules applying. Very broadly, the arbitrage function transactions exchange cryptocurrency instantaneously. We don't think cryptocurrency is money or a money equivalent. • The TOFA extension for commodity trading in section 230-530 won't apply. We think there's uncertainty about whether cryptocurrency is a commodity in the sense used in this section. But even if it is, section 230-530 still won't apply because the company doesn't produce audited financial reports complying with accounting principles. | Detailed Reasoning - Question 2: Will the TOFA rules apply to cryptocurrency held by the company other than for trading under the arbitrage function? Summary 36. No. The TOFA rules wouldn't apply to the company' other cryptocurrency holdings (either current stablecoin holdings, or any other cryptocurrency acquisitions it might make) outside the arbitrage function. • We don't think either cryptocurrency holdings, or the contracts to purchase them, will be financial arrangements. Merely holding cryptocurrency doesn't create cash settlable rights or obligations. The only cash settlable obligation is to give money under the purchase contracts . Broadly, the point of the purchase contract is to acquire cryptocurrency, and that right isn't a cash settlable right. Therefore, paragraphs 230-45(1)(d),(e) and (f) will apply to exclude the purchase contracts from being financial arrangements. • Even if these holdings were financial arrangements, the exclusion for short-term non-money amounts in section 230-450 would apply to prevent the TOFA rules applying for the same reasons as Question 1. • The TOFA extension for commodity trading in section 230-530 won't apply for the same reasons as Question 1. | Detailed Reasoning - Question 3: Will the TOFA rules apply to cryptocurrency held by the discretionary trust? Summary 37. No. The TOFA rules won't apply to cryptocurrency held by the discretionary trust for the same reasons as Question 2. | Detailed Reasoning - Question 4: Will the TOFA rules apply to gold and silver bullion held as investments on the company's balance sheet? Summary 38. No. The TOFA rules won't apply to the company' gold and silver bullion holdings. • We don't think bullion holdings, or a contract to purchase them, will be financial arrangements. Merely holding bullion doesn't create cash settlable obligations. The only cash settlable obligation is to give money under the purchase contracts. Like Question 2, the point of the purchase contract is to acquire bullion, and that right isn't a cash settlable right. Paragraphs 230-45(1)(d),(e) and (f) will apply to exclude the purchase contracts from being financial arrangements. • Even if these holdings were financial arrangements, the exclusion for short-term non-money amounts in section 230-450 would apply to prevent the TOFA rules applying. Very broadly, the purchase contracts are immediate, not deferred, and bullion isn't money, or a money equivalent, or a financial derivative. • The TOFA extension for commodity trading in section 230-530 won't apply. While bullion is a commodity, the company doesn't seem to be a bullion commodity trader. In any event, the company isn't eligible for the extension because it doesn't produce audited financial reports complying with accounting principles. | Detailed Reasoning - Question 5: Will the TOFA rules apply to the individual taxpayer when running the arbitrage function personally? Summary 39. No. The TOFA rules won't apply to the individual taxpayer for the same reasons we gave for the company in Question 1. In any event, individuals are excluded from the rules unless they elect for TOFA to apply. | Detailed Reasoning - Question 6: If the answer to any of Questions 1 through 5 is 'yes', will the realisation method be the most appropriate for determining TOFA gains and losses? Summary 40. Not applicable because the answer to Questions 1 through 5 is 'no'. TOFA doesn't apply to any transactions covered by this ruling, so the relevant taxpayers don't need to determine any TOFA gains and losses. | Detailed Reasoning - Question 7: If the answer to Question 1 is 'yes', will the TOFA gain be the additional cryptocurrency generated as a result of the arbitrage function, with ordinary cryptocurrency disposals being sales revenue and ordinary cryptocurrency acquisitions being purchases? Summary 41. Not applicable because the answer to Question 1 is 'no'. TOFA doesn't apply to any transactions covered by this ruling, so the relevant taxpayers don't need to determine any TOFA gains and losses. | Detailed Reasoning - Overview: 42. Division 230 is about the tax treatment of gains and losses from certain financial arrangements. We refer to the rules in Division 230 as the TOFA rules. Very broadly, the TOFA rules: • assess gains as assessable income, and allow losses as deductions • include alternative methods for calculating gains and losses from financial arrangements • override other rules to the extent the TOFA rules apply. 43. Broadly, the TOFA rules apply to financial arrangements. Financial arrangement has the meanings given by sections 230-45 and 230-50. Broadly, you have a financial arrangement under section 230-45 if you have a cash settlable right or obligation under an arrangement. Nevertheless, an arrangement won't be a financial arrangement if it includes a significant right or obligation which isn't a financial benefit, or isn't cash settlable. Broadly, you have a financial arrangement under section 230-50 if it's an equity interest or creates rights or obligations about equity interests. Section 230-55 has rules for working out if multiple rights and obligations form part of the same arrangement. 44. However, there are exceptions to the general rules. In some cases, the TOFA rules don't apply even if something's a financial arrangement, and in some cases the TOFA rules will apply to non-financial arrangements. For example: • there's an exclusion for short-term (section 230-45) financial arrangements involving non-money amounts: section 230-450 • certain taxpayers are excluded where there's no significant deferral from the financial arrangement: section 230-455 • TOFA applies to foreign currency, non-equity shares, and commodities held by traders, as if they were financial arrangements: see section 230-530. 45. We won't discuss the other exceptions in subdivision 230-H. [2] They'd only be relevant if the exception in sections 230-450 didn't apply, and we think it does. In any event, we don't think the other exceptions would apply here. 46. The questions raised by this ruling application require us to apply the TOFA rules to three different arrangements. • The first arrangement is about transactions entered by a trading bot to simultaneously swap cryptocurrency types to arbitrage from short-term differences in cryptocurrency conversion rates. This is relevant to the company, and also the individual taxpayer for the period they were running the arbitrage function under their own name. We call this the 'arbitrage function' as a shorthand. • Second, other cryptocurrency holdings. This is relevant to the discretionary trust's long-term cryptocurrency investments. It's also relevant to the company' stablecoin holdings, held for conversion to cash. The same reasoning would apply to other future cryptocurrency acquisitions it might make other than for arbitrage trading (for example, long-term investments, or more conventional trading on regular cryptocurrency exchanges, without an automated arbitrage function). We talk about these as 'cryptocurrency holdings' as a shorthand. • Third, long-term investments in bullion. This is relevant to the company. We call these 'bullion investments'. 47. Some issues are common to all arrangements: • are the arrangements financial arrangements under section 230-45? • does the exception for short-term non-money arrangements in section 230-450 apply? • does the extension in section 230-530 apply? We summarise our responses to these issues in Table 2. | Detailed Reasoning - Bullion investments (company): Is there a financial arrangement under section 230-45? Yes. All rights and obligations are cash settlable. | Detailed Reasoning - See the Annexure, Tables 3 and 4.: No. While the company and the discretionary trust will have cash settlable obligations under the purchase contracts, the purpose of those contracts is to acquire cryptocurrency. A right to receive cryptocurrency isn't a cash settlable right. | Detailed Reasoning - See the Annexure, Tables 3 and 4.: No. Similar to the cryptocurrency purchase contracts, while the company will have cash settlable obligations under the purchase contracts contracts, the purpose is to acquire bullion. A right to receive bullion isn't a cash settlable right. | Detailed Reasoning - See the Annexure, Tables 3 and 4.: Does the exception for short-term non-money amounts in section 230-450 apply? Yes. Broadly, the smart contracts acquire cryptocurrency. Cryptocurrency is property. It isn't money, a money equivalent, or a derivative financial arrangement. While the financial arrangement to exchange cryptocurrency under the smart contracts will be a money equivalent, cryptocurrency itself won't be. | Detailed Reasoning - See the Annexure, Table 11.: No, because we don't think the cryptocurrency holdings are financial arrangements. However, if they were, the exception for short-term non-money amounts would apply, for similar reasons to the arbitrage function. | Detailed Reasoning - See the Annexure, Table 11.: No, because we don't think the bullion investments are financial arrangements. However, if they were, the exception for short-term non-money amounts would apply. The company has acquired bullion. Bullion is property, not money, a money equivalent, or a derivative financial arrangement. | Detailed Reasoning - See the Annexure, Table 11.: Does the extension for commodity trading in section 230-530 apply? No. We think there's significant doubt about whether cryptocurrency is a commodity for the purposes of this extension. Even if it was, the fair value election requirement won't be met. | Detailed Reasoning - See the Annexure, Table 12.: No, for similar reasons to the arbitrage function. Further, the dealing requirements mightn't be met. | Detailed Reasoning - See the Annexure, Table 12.: No. While gold and silver bullion are commodities, the company won't be dealing with those commodities in the relevant sense. Even if it did, the fair value election requirement won't be met. | Detailed Reasoning - Does TOFA apply?: No No No | Detailed Reasoning - Is there a financial arrangement?: 48. Something will be a financial arrangement if it qualifies under sections 230-45 or 230-50. Broadly: • an arrangement will qualify under section 230-45 if it creates cash settlable rights or obligations, and doesn't create non-cash settlable rights or obligations • a right or obligation to a financial benefit is deemed to be cash settlable under subsection 230-45(2) if it: - is (or can be settled in) money or a money equivalent - is dealt with to profit from short-term price fluctuations - is convertible to money or a money equivalent in a highly liquid market, and meets other conditions. • an arrangement will qualify under section 230-50 if it's an equity interest, or creates rights or obligations about equity interests. We describe and apply these sections in the Annexure. See Tables 3 and 4 for section 230-45, and Table 5 for section 230-50. 49. Section 230-55 has rules for whether rights, obligations, and arrangements are treated separately or grouped when applying the TOFA rules. Rights and obligations to receive multiple financial benefits are treated as separate rights and obligations: subsections 230-55(1) and (2). Whether a number of rights are a single, or 2 or more separate arrangements is a question of fact, considering listed circumstances: subsection 230-55(4). 50. We conclude that the cryptocurrency transactions under the arbitrage function are financial arrangements, but not the cryptocurrency and bullion holdings. Broadly: • all rights and obligations under the arbitrage function are cash settlable because they are entered to arbitrage from differences in cryptocurrency conversion rates • simply holding cryptocurrency or bullion doesn't create any rights or obligations to a financial benefit, so it can't be a financial arrangement • contracts to purchase cryptocurrency or bullion don't create obligations to deliver assets: those obligations can't be settled with money or money-equivalents • section 230-50 isn't relevant because cryptocurrency and bullion don't create any equity-like interests in an entity. See the Annexure, Tables 3, 4 and 5 for more detail. | Detailed Reasoning - Does the exception for short-term non-money amounts in section 230-450 apply?: 51. Very broadly, section 230-450 excludes financial arrangements involving short-term non-money amounts from the TOFA rules. Section 230-450 says Division 230 doesn't apply to gains and losses from a financial arrangement where certain requirements are met. We describe and apply these rules in more detail in the Annexure, Table 11. But we summarise them here in seven bullet points: • the arrangement is a financial arrangement under section 230-45 (about cash settlable arrangements) • you acquired or provided goods, other property or services • those goods, property or services aren't money or a money equivalent • you provided financial benefits as consideration for those goods, property or services • the period between providing consideration and providing property, goods or services didn't exceed 12 months • the arrangement isn't a derivative financial arrangement • a fair value election doesn't apply. 52. We think these conditions are met for the arbitrage function, and would be met for the cryptocurrency and bullion holdings if they were financial arrangements. Cryptocurrency and bullion are property. They aren't money or money equivalents. The relevant entities provided either cryptocurrency or money to acquire them. Both cryptocurrency and bullion are financial benefits. Delivery was instantaneous. The arrangements aren't derivative financial arrangements for reasons explained in the Annexure at paragraphs 82 through 85. The entities aren't eligible to make a fair value election: see paragraphs 59 through 60. | Detailed Reasoning - Does the exception for certain entities in section 230-455 apply?: 53. Section 230-455 also excludes the TOFA rules from applying to a list of qualifying entities in specified circumstances. The list includes: • individuals: subparagraph 230-455(1)(a)(i) • superannuation entities, superannuation funds, managed investment schemes or similar entities: subparagraph 230-455(1)(a)(ii) [3] • ADIs, securitisation vehicles, and entities required to registered under financial data collection laws: subparagraph 230-455(1)(a)(iii) [4] • other entities: subparagraph 230-455(1)(a)(iv). Broadly, section 230-455 also requires that the arrangement either doesn't last longer than 12 months, or the arrangement isn't a qualifying security [5] : see paragraph 230-455(1)(e). 54. Turnover and asset tests apply to all categories except individuals. 'Other entities' will only be excluded if they meet three turnover tests. The turnover tests apply to either the current or previous income year, depending on when the entity came into existence. To broadly summarise these tests: • the entity's aggregated turnover [6] is less than $100 million: paragraph 230-455(4)(a) • the value of the entity's financial assets is less than $100 million: paragraph 230-455(4)(b) • the value of the entity's assets is less than $300 million: paragraph 230-455(4)(c). 55. However, section 230-455 won't apply if the entity elects for the TOFA rules to apply: see subsections 230-455(6), (7), (8) and (9). 56. Section 230-455 isn't relevant because we've concluded that the arrangements are already excluded from TOFA under section 230-450. 57. For completeness, if section 230-450 didn't apply, section 230-455 would only be relevant to the individual taxpayer. • As an individual, they would be excluded from the TOFA rules under subparagraph 230-455(1)(a)(i) unless they elected to apply them. • We have no information to suggest that any relevant entities are superannuation or investment entities, ADIs, securitisation vehicles, or covered by financial data collection laws. • (This bullet point discussed the company's turnover. It has been redacted in this edited version for privacy concerns). [7] • (Part of this bullet point discussed the discretionary trust's turnover. That discussion has been redacted in this edited version for privacy concerns.) The discretionary trust will be connected with the company if both entities are controlled by the individual taxpayer. If so, the discretionary trust's turnover would include the company' turnover. We haven't determined this issue because we think the arrangement is excluded under section 230-450. • The transactions covered by the arbitrage function, the cryptocurrency purchase contracts and the bullion purchase contracts are all instantaneous, so paragraph 230-455(1)(e) would be met. | Detailed Reasoning - Do the extended rules in section 230-530 apply?: 58. Section 230-530 extends the TOFA rules by deeming certain arrangements to be financial arrangements. Division 230-530 will apply as if arrangements constituted a financial arrangement in four situations, about: • foreign currency: subsection 230-530(1) • non-equity shares: subsection 230-530(2) • commodities held by traders: subsection 230-530(3) • offsetting commodity contracts held by traders: subsection 230-530(4). See the Annexure, Table 12 for a description of the rules in section 230-530. 59. Very broadly, the rules in subsection 230-530(3) and (4) for commodity traders apply if the entity: • trades or deals in the commodity, or has a practice of dealing in contracts with the commodity • makes a fair value election or elects to rely on financial reports • is required under accounting principles to classify or designate the commodity at fair value through profit and loss. You're eligible to make a fair value election, or an election to rely on financial reports, if you prepare audited financial reports in accordance with accounting principles. See sections 230-210 and 230-395. 60. We describe and apply the requirements for section 230-530 in more detail in the Annexure, Table 12. To loosely summarise our reasoning, we don't think the exceptions will apply for the following reasons. • Foreign currency is a unit of account accepted by another country's laws to discharge monetary obligations. In our view, neither cryptocurrency or bullion is foreign currency because they aren't generally accepted in that way. • Non-equity shares are shares in companies which don't meet the definition of an 'equity interest'. Cryptocurrency and bullion aren't shares, and they aren't equity interests either. • The commodity trading exceptions only apply to certain dealings in commodities, where the entity makes a fair value election. Commodities generally mean physical items used in trade and commerce. You can only make a fair value election if you produce audited financial statements in accordance with accounting principles. We think there's uncertainty about whether cryptocurrency is a commodity. Even if it is, none of the relevant entities produce audited financial statements in accordance with accounting principles. | Detailed Reasoning - Reasoning for Questions 6 and 7: 61. Very broadly, the TOFA rules apply to work out the tax consequences of financial arrangements. Section 230-15 says gains from financial arrangements are included in assessable income, and losses from financial arrangements are deductible. 62. Broadly, the TOFA rules apply to arrangements which qualify as a financial arrangement, unless exceptions or the extended rules apply. • Something will be a financial arrangement if it's cash settlable (section 230-45) or is an equity interest (section 230-50). • Even if something's a financial arrangement, TOFA won't apply if an exception applies - such as section 230-450 for short-term non-money amounts. • If the extended rules in section 230-530 apply, TOFA will apply as if something qualified as a financial arrangement. 63. If the TOFA rules apply, there are several alternative methods which could apply to calculate gains and losses. These are listed in section 230-40. Very broadly: • the accruals method will apply if the gain or loss meets a test of being 'sufficiently certain' under section 230-100 • the realisation method will apply if the gain or loss doesn't meet the sufficiently certain test • taxpayers may be able to elect to apply other methods: fair value, foreign exchange retranslation, hedging financial arrangements, or relying on financial reports. 64. The TOFA calculation rules aren't relevant to this ruling. There's no need to calculate gains and losses because the TOFA rules don't apply for the reasons we gave in Questions 1, 2, 3, 4 and 5 and the Annexure. | Detailed Reasoning - Bullion as an investment (company): SECTION 230-45 Financial arrangement | Detailed Reasoning - 230-45(1): You have a financial arrangement if you have, under an *arrangement [8] : Note: section 230-55 has rules for determining if multiple rights and obligations form part of the same financial arrangement. See paragraphs 65 to 69 . Simultaneous trades under a smart contract would be an arrangement because it's an agreement. We think the relevant arrangement is the entire set of individual trades entered under a single smart contract, not each individual trade taken separately. See paragraphs 65 to 69. However, we don't think anything turns this. If each individual trade was characterised as a separate arrangement, we think section 230-45 would still apply to each. An agreement to buy cryptocurrency would be an arrangement. Cryptocurrency itself (or holding cryptocurrency) might also be an arrangement in the broad sense of section 995-1, but we don't think that's relevant here. [9] Individuals need to independently enter transactions to convert property rights into rights or obligations which could be described as financial benefits in the sense of section 230-45. Buying bullion as an investment would also be an arrangement. Like cryptocurrency, conceivably bullion (or holding cryptocurrency) could be conceptualised as an arrangement, but we don't think that could create a financial benefit either. Simply holding bullion doesn't create rights or obligations to give or receive financial benefits. (a) a *cash settlable legal or equitable right to receive a *financial benefit; or Broadly, section 974-160 says a financial benefit means anything of economic value, and includes property and services. Benefits and obligations are to be looked at separately and not set off against each other. This is met. The smart contract deals to swap cryptocurrency are cash settlable. Trying to profit from short-term price fluctuations is one way an arrangement can be cash settlable: see 230-45(2)(e). See Table 4. There's also a financial benefit. Cryptocurrency is something of economic value. The example from the facts gives the company (or previously the individual taxpayer) rights to receive amounts of Coin B, Coin C and Coin A. It also has obligations to give amounts of Coin A, Coin B and Coin C to other parties. The benefits and obligations are to be looked at separately and not set off: see subsection 974-160(2), and also subsections 230-55(1 and (2). Not met. The company or the discretionary trust will be agreeing to buy cryptocurrency in exchange for paying cash. We conclude at Table 6 that cryptocurrency isn't money. We conclude at Table 7 that it isn't a money equivalent either. As purchasers, they won't have any right to receive money or a money equivalent, so the right won't be cash settable. Simply holding cryptocurrency doesn't directly create a right to receive a financial benefit. The holder would need to sell cryptocurrency to receive any financial benefit. Not met. The purchase contracts for bullion don't give the company a cash settlable right. Rather, they give the company rights to receive bullion. We don't think gold and silver bullion are money. See Table 6 . (b) a cash settlable legal or equitable obligation to provide a financial benefit; or Met. There's an obligation to give Coin A, Coin B and Coin C to other parties (in that order). It has corresponding rights to receive them, but benefits and obligations are to be looked at separately and not set off: see subsection 974-160(2), and also subsections 230-55(1) and (2). This is met. The company and the discretionary trust, as purchasers, have an obligation to give money in exchange for receiving cryptocurrency. Simply holding cryptocurrency (once acquired) doesn't directly create any obligation to provide a financial benefit. Met for buying bullion as an investment. There's an obligation for the company to give money in exchange for the bullion. (c) a combination of one or more such rights and/or one or more such obligations; Met. See paragraphs (a) and (b) Not relevant because paragraph (b) is met. Not relevant. Paragraph (b) is met. | Detailed Reasoning - unless:: Doesn't apply because paragraph (e) isn't met. The exclusions apply because paragraphs (d), (e) and (f) are all met. See below. The exclusions apply because paragraphs (d), (e) and (f) are all met. See below. (d) you also have under the arrangement one or more legal or equitable rights to receive something and/or one or more legal or equitable obligations to provide something; and Met. The arrangement includes a right to receive, and an obligation to give, cryptocurrency. This is met. The company and the discretionary trust have rights to receive cryptocurrency and obligations to give cash. Met. The company has an obligation to give money, and a right to receive bullion. (e) for one or more of the rights and/or obligations covered by paragraph (d): (i) the thing that you have the right to receive, or the obligation to provide, is not a financial benefit; or (ii) the right or obligation is not cash settlable; and Not met. These aren't relevant to the cryptocurrency trading activities. The things are financial benefits so subparagraph (e)(i) isn't met. The rights and obligations are cash settlable, so subparagraph (e)(ii) isn't met either. Met because subparagraph (e)(ii) applies, even though (e)(i) doesn't. The company and the discretionary trust have rights under the relevant purchase contracts to receive cryptocurrency, and obligations to give cash. Subparagraph (e)(i) isn't met. Cash is a financial benefit because it has economic value. Cryptocurrency has value and is property. It follows that cryptocurrency is also a financial benefit under section 974-160. There are no rights or obligations under the contracts which aren't financial benefits. However, subparagraph (e)(ii) is met. The company and the discretionary trust's rights to receive cryptocurrency aren't cash settlable: see Table 4. The sellers can't satisfy their obligations by returning cash rather than giving cryptocurrency. Met. The company has a right to receive bullion. Bullion is property - see paragraphs 80 to 81. This right isn't cash settlable because the seller can't satisfy the obligation by returning cash. The rights are 'not insignificant' (when compared to the company's obligation to give cash to the seller) because the arrangement is about buying the cryptocurrency or bullion. (f) the one or more rights and/or obligations covered by paragraph (e) are not insignificant in comparison with the right, obligation or combination covered by paragraph (a), (b) or (c). The right, obligation or combination covered by paragraph (a), (b) or (c) constitutes the financial arrangement. Not relevant - there are no rights or obligations covered by paragraph (e). Met. The obligation for the company or the discretionary trust to give money is the financial benefit covered by paragraph (b). The right covered by paragraph (e) is the right to receive the amount of cryptocurrency purchased by providing that money. Existing cryptocurrency holdings have been bought at market prices. Therefore, the rights or obligations would be approximately equal. There are no other rights or obligations under the arrangement. It follows that the right is 'not insignificant' compared to the obligation. Met for similar reasons. The obligation for the company to give money is the financial benefit covered by paragraph (b). The right covered by paragraph (e) is the right to receive the amount of bullion purchased by providing that money. Bullion has been bought at market price through a public market. There are no other rights or obligations under the arrangement. It follows that the right is 'not insignificant' compared to the obligation. | Detailed Reasoning - Are all trades conducted under a single smart contract a single arrangement?: 65. It's a question of fact and degree whether transactions form a single arrangement or multiple arrangements under the TOFA rules. Subsection 230-55(4) says that whether a number of rights or obligations are themselves an arrangement or are two or more separate arrangements is a question of fact and degree. It says it's necessary to consider the rights and obligations both separately and in combination. Relevant factors to determining this question include: • the nature of the rights and obligations • terms and conditions • circumstances surrounding their creation, proposed exercise, or performance (including what can be reasonably be seen as the purposes of one or more of the entities involved) • whether they can be dealt with separately or must be dealt with together • normal commercial understandings or practices (including whether they are regarded commercially as separate or as a group or series) • the objects of the TOFA rules. 66. Notes 1 and 2 to subsection 230-55(4) give some suggestions for how separate contracts which are linked commercially might form one arrangement: Note 1: If you raised funds by means of a contract that you would not have entered into without entering into another contract, and neither contract could be assigned to a third party without the other also being assigned, this would tend to indicate that your rights and obligations under the 2 contracts together constitute one arrangement. Note 2: If the commercial effect of your individual rights and/or obligations in a group or series cannot be understood without reference to the group or series as a whole, this would tend to indicate that all of your rights and/or obligations in the group or series together constitute one arrangement. 67. Broadly, the object of the TOFA rules is to ensure the tax consequences for gains and losses don't distort commercial decision making. Section 230-10 says: The objects of this Division are: (a) to minimise the extent to which the tax treatment of gains and losses from your *financial arrangements distorts, by providing inappropriate impediments and stimulation, your trading, financing and investment decisions and your risk taking and risk management; and (b) to do so by aligning more closely the tax and commercial recognition of gains and losses from your financial arrangements in the following ways: (i) by allocating the gains and losses to income years throughout the life of your financial arrangements on a reasonable basis; (ii) by generally recognising gains and losses on revenue rather than capital account; and (c) to appropriately take account of, and minimise, your compliance costs. 68. We identify some relevant circumstances in this paragraph, drawing on the example from the facts. (Coin A is swapped for Coin B, Coin B for Coin C, Coin C for Coin A.) • Paragraph (d) might point towards each trade being a separate arrangement. Each trade (say Coin A for Coin B) could make sense taken alone. • When we consider paragraph (c), we think the circumstances about the proposed exercise and performance show the three trades are linked. They are entered simultaneously under the same contract. • Also under paragraph (c), we think the company's purpose demonstrates the trades are linked. It has a common purpose in entering all three transactions. Its goal is to profit from arbitrage, not to acquire or dispose of cryptocurrency assets. It will end up holding the same type of cryptocurrency (Coin A) which it held before entering the smart contract. It will hold a larger amount of Coin A if the arbitrage attempt is successful. The company is indifferent about what types of cryptocurrency it holds at any point - if wouldn't matter whether the arbitrage was achieved through ending with Coin A or some other cryptocurrency. • For similar reasons, we think normal commercial understandings and practices tend to show the transactions are linked: paragraph (e). The true commercial purpose for the transaction can only be understood by looking at all trades together. • We think treating all trades under a smart contract as a single arrangement would tend to promote the objects of the TOFA rules: paragraph (f). From the company's perspective, it has entered the smart contract to make a profit. Recognising each trade separately would require it to analyse three separate transactions and potentially calculate gains or losses from each. Also, looking at the commercial effect of its rights and obligations under a single trade would be misleading. That might produce distorting effects and increase compliance costs. 69. We think these factors, on balance, show it's appropriate to treat all transactions under a single smart contract as a single arrangement. When we consider the company's purpose, we think all transactions are connected. If those links were ignored for tax purposes, that could produce distortion or misalignment, defeating the object of the TOFA rules. We think those considerations outweigh the factor that each transaction could be (theoretically) dealt with separately. We think the notes to subsection 230-55(4) confirm this is the right approach. Here, the commercial effect for the company can't be understood by looking at each trade in isolation. For example, looking at the trade from Coin A to Coin B alone is misleading. It isn't really disposing of Coin A and acquiring Coin B. When all trades are considered together, the cryptocurrency holdings will be the same before and after the transaction. From a commercial viewpoint, the three trades are a single arrangement. The same reasoning applies to the individual taxpayer for the period they were running the arbitrage function under their own name. | Detailed Reasoning - 230-45(2): A right you have to receive, or an obligation you have to provide, a *financial benefit is cash settlable if, and only if: The right is to receive cryptocurrency, the obligation is to give cryptocurrency. The right is to receive cryptocurrency, the obligation is to give money. The right is to receive bullion, the obligation is to give money. (a) the benefit is money or a *money equivalent; or Not met. The relevant financial benefits are cryptocurrency, rather than the rights or obligations to deal with them. Cryptocurrency isn't money or a money equivalent. See Table 6. Briefly, while the rights (obligations) to receive (provide) cryptocurrency are money equivalents (because they are financial arrangements) the underlying cryptocurrency assets aren't money equivalents. Met. The right to receive cryptocurrency wouldn't be cash settlable under this paragraph. Cryptocurrency isn't money. See Table 6. The obligation to givemoney for cryptocurrencywould be cash settlable because there's an obligation to give money. The right to receive gold bullion (when paid for with cash) wouldn't be cash settlable. While gold bullion can be made into coins, it isn't generally accepted as a medium of exchange in its raw form, at least not in Australia. See Table 6. Therefore gold bullion isn't money. It would only be a money equivalent if it was a financial arrangement. The obligation to give money for gold bullion would be cash settlable because the company has an obligation to give money. (b) in the case of a right - you intend to satisfy or settle it by receiving money or a money equivalent or by starting to have, or ceasing to have, another *financial arrangement; or As above. Not met. The company and the discretionary trust don't intend to settle their rights to receive cryptocurrency by receiving money, a money equivalent, or another financial arrangement instead. We don't think cryptocurrency as a stand-alone asset is a money equivalent. See Table 7. Not met. The company doesn't intend to settle the right to receive bullion by receiving money or a money equivalent or another financial arrangement. (c) in the case of an obligation - you intend to satisfy or settle it by providing money or a money equivalent or by starting to have, or ceasing to have, another financial arrangement; or As above. Met for the obligation , but paragraph 230-45(2)(a) has already been met. Met for the obligation, but paragraph 230-45(2)(a) has already been met. (d) you have a practice of satisfying or settling similar rights or obligations as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way); or As above. Not met for the right to receive cryptocurrency. We don't have any information to suggest the company, or the discretionary trust, have a practice of settling their rights under cryptocurrency purchase contracts with money, money equivalents, or financial arrangements. Not met for the right to receive bullion. No information to suggest the company has a practice of settling its rights to receive bullion by receiving money or a money equivalent or another financial arrangement. (e) you deal with the right or obligation, or with similar rights or obligations, in order to generate a profit from short-term fluctuations in price, from a dealer ' s margin, or from both; or Met. The company deals with the rights or obligations 'in order to generate a profit from short-term fluctuations in price.' The company enters smart contracts which require it to exchange Coin A for Coin B for Coin C and back to Coin A simultaneously. This is 'dealing with rights or obligations.' It's attempting to arbitrage from differences in cryptocurrency conversion rates. Arbitrage is about generating a profit from short-term fluctuations in price. The same reasoning would apply to the individual taxpayer for the period they ran the arbitrage function under their own name. Not met. The company is holding stablecoin to convert to cash. The discretionary trust is holding cryptocurrency as a long-term investment. Neither purpose is about profiting from short-term price fluctuations. It might be different for any cryptocurrency the company later acquires for other purposes, such as trading in centralised exchanges. In that case, whether this requirement is met would depend on the circumstances and nature of the trading activity. Not met because the company will hold the bullion as a long-term investment. (f) none of paragraphs (a) to (e) applies but you satisfy subsection (3); or Not relevant because paragraph (e) applies. For completeness, we think there's uncertainty about whether the requirement in paragraph 230-45(3)(b) will be met - is cryptocurrency highly liquid? See discussion for 230-45(3)(b) several rows below in this table. Not relevant to the obligation to give cash because paragraph (a) applies. This could be relevant to the right to receive cryptocurrency. Not relevant to the obligation to give cash because paragraph (a) applies. This could be relevant to the right to receive bullion. (g) you are able to settle the right or obligation as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way) and you do not have, as your sole or dominant purpose for entering into the arrangement under which you are to receive or provide the financial benefit, the purpose of receiving or delivering the financial benefit as part of your expected purchase, sale or usage requirements. Most likely met. Paragraphs (b) and (c) are about satisfying rights or obligations by giving or receiving money, money equivalents, or starting or ending financial arrangements. Cryptocurrency can be bought and sold in cryptocurrency exchanges. [10] Therefore, it is 'convertible' into money. Not met. The company and the discretionary trust are entering the contracts to purchase cryptocurrency. Their sole purpose would be part of their expected purchase requirements. Not met. The company is entering the contracts to purchase bullion. Its sole purpose would be part of its expected purchase requirements. | Detailed Reasoning - 230-45(3): You satisfy this subsection if: Arguably met, if all relevant cryptocurrencies are highly liquid at the relevant times. Not met because neither subsections 230-45(4) nor (5) will be met. Not met because neither subsections 230-45(4) nor (5) will be met. (a) the *financial benefit is readily convertible into money or a *money equivalent; and Most likely met. Cryptocurrency can be bought and sold in cryptocurrency exchanges. Therefore, it is 'convertible' into money. Met for the right to receive cryptocurrency. The financial benefit is cryptocurrency. That's convertible to money because it can be bought and sold on exchanges. [11] Met for the right to receive bullion. Bullion can be bought and sold on public markets and retail websites. [12] (b) there is a market for the financial benefit that has a high degree of liquidity; and In many cases this could be met, but there's uncertainty because there are many types of cryptocurrency. See Table 8 . As for the cryptocurrency exchanges under the arbitrage function. There's some uncertainty. Arguably met for the discretionary trust's purchase of x Coin X tokens on date x in the 20XX income year, because this was small compared to the daily trading volume on that date. See Table 8 . Met. The company's investment is very small compared to daily trading volumes for gold bullion, so it's highly liquid for the purposes of this subsection. See Table 8 . (c) subsection (4) or (5) is satisfied. Met, because subsection (4) is met. Not met. See rows below. Not met. See rows below. | Detailed Reasoning - 230-45(4): This subsection is satisfied if, for the recipient of the *financial benefit, the amount of the money or *money equivalent referred to in paragraph (3)(a) is not subject to a substantial risk of substantial decrease in value. This is probably met. See Table 9. Not met. The relevant benefit is cryptocurrency. We think that when cryptocurrency is acquired as an investment there's a substantial risk that it will suffer a substantial decrease in value. We think the same reasoning would apply when cryptocurrency is held for other purposes, even for trading on centralised exchanges outside the arbitrage function. When cryptocurrency is held for hours, days or weeks, rather than moments under the arbitrage function, we think that the risk of a significant decline in value will increase. See Table 9. Not met. The relevant benefit is bullion. We think that when acquired as an investment, there's a substantial risk it will suffer a substantial decrease in value. See Table 9. | Detailed Reasoning - 230-45(5): This subsection is satisfied if your purpose, or one of your purposes, for entering into the arrangement under which you are to receive or provide the *financial benefit, is to receive or deliver the financial benefit: (a) to raise or provide finance; or (b) if paragraph (a) does not apply - so that it may be converted or liquidated into money or a money equivalent (other than as part of your expected purchase, sale or usage requirements). This is arguably met. Paragraph (a) isn't met because the company isn't using the arbitrage function to raise or provide finance for some independent project. The company is trying to make a profit. However, it's possible that paragraph (b) could be met. The same reasoning would apply to the individual taxpayer for the period they ran the arbitrage function under their own name. See Table 10. Not met. Paragraph (a) isn't met because neither the company nor the discretionary trust are investing in cryptocurrency holdings to finance some independent project. Paragraph (b) most likely isn't met. See Table 10. Not met. Paragraph (a) isn't met because the company isn't buying bullion to finance some independent project. Paragraph (b) most likely isn't met. See Table 10. Table 5: Financial arrangements under section 230 -50 | Detailed Reasoning - 230-50(1): You also have a financial arrangement if you have an *equity interest. The equity interest constitutes the financial arrangement. Section 995-1 says equity interest in an entity has meanings given by subdivision 974-C (for companies) and section 820-930 (for trusts and partnerships). Broadly, a scheme gives rise to an equity interest if, for companies, it meets the equity test in section 974-75, and for trusts and partnerships, the equity test in subsection 820-930(2). These tests will be met if the scheme gives rise to an interest: • as a trust beneficiary, partner in a partnership, or member or stockholder in a company • that carries a right to a variable or fixed return from the trust, partnership or company which is contingent on the entity's economic performance • that carries a right to a variable or fixed return at the entity's discretion • that gives the holder a right to be issued with equity interests, or will convert into an equity interest, in the entity. Not met. The relevant arrangements are about acquiring and holding cryptocurrency and bullion. Cryptocurrency and bullion holdings don't give the holders interests in any identifiable company, trust, or partnership. There aren't any returns from cryptocurrency or bullion unless they are sold. They don't give periodic returns like distributions of profit, or payments of interest on a debt. They don't convert into any arrangement that could be described as an equity interest (like shares in a company). The contracts to purchase cryptocurrency and bullion don't create any interests that could be equity interests either. | Detailed Reasoning - 230-50(2): You also have a financial arrangement if: (a) you have, under an *arrangement: (i) a legal or equitable right to receive something that is a financial arrangement under this section; or Cryptocurrency and bullion holdings don't create any rights to receive equity interests. (the reference to 'under this section' means 230-50 - in other words, it has to be an equity interest) (ii) a legal or equitable obligation to provide something that is a financial arrangement under this section; or Cryptocurrency and bullion holdings don't create any rights to provide equity interests. (iii) a combination of one or more such rights and/or obligations; and Neither subparagraphs (a)(i) nor (a)(ii) apply, so this isn't met. (b) the right, obligation or combination does not constitute, or form part of, a financial arrangement under subsection 230-45(1) . Met for transactions covered by the arbitrage function. | Detailed Reasoning - Table 6: Are the financial benefits money?: For context, this discussion follows from Table 4. A financial benefit will be cash settlable under paragraph 230-45(2) if it's money. | Detailed Reasoning - Bullion: A financial benefit will be cash settlable if it's money. 'Money' isn't defined. While section 995-1 says money "in relation to the consideration for a taxable supply" takes its meaning from GST legislation, money isn't defined outside that context. Therefore, its meaning is affected by ordinary usage and context. The Macquarie Dictionary [13] says meanings of 'money' include: • "gold, silver, or other metal in pieces of convenient form stamped by public authority and issued as a medium of exchange and measure of value" • current coin • "coin or certificate (as banknotes, etc.) generally accepted in payment of debts and current transactions" • "a particular form or denomination of currency" [14] . The ATO view is that bitcoin isn't money. TD 2014/25 [15] explains the ATO view that bitcoin isn't foreign currency under Division 775 of the ITAA 1997. In reaching that conclusion, it considered whether bitcoin is money at paragraphs 17 to 24. It cited dictionaries, legal texts and case law to the general effect that money: • is a generally accepted medium of exchange • is accepted throughout the community to pay for commodities and discharge debts • in the modern legal sense, must exist within a legal framework or be recognised by the state. TD 2014/25 concluded that bitcoin doesn't satisfy the ordinary meaning of money because its current levels of use and acceptance fall short of these criteria. While cryptocurrency's use may have changed since 2014, TD 2014/25 remains the ATO view - it hasn't been withdrawn. We think that the position that Bitcoin isn't money is still correct. We're aware about reports that Bitcoin has been endorsed as legal tender in El Salvador. [16] But we don't think that necessarily makes Bitcoin money. First, we question whether Bitcoin is generally accepted by the El Salvador community as a means of payment and medium of exchange. Second, even if it was regarded as 'money' in El Salvador, we don't think that it would meet the characteristics of money when used or held outside that jurisdiction. In most countries, Bitcoin still isn't generally accepted as a medium of exchange, isn't generally accepted as a means of payment, and isn't legally recognised by the state. If Bitcoin isn't money, we don't think other types of cryptocurrency would be money either. There are many different types of cryptocurrency: according to Investopedia, in February 2022 there were nearly 10,000 cryptocurrencies in existence. [17] However, Bitcoin remains the most popular and most widely traded. [18] According to Investopedia, cryptocurrencies are hardly used as payment for retail transactions, and not all ecommerce sites allow cryptocurrency to be used for purchases. [19] While some companies accept some types of cryptocurrency as payment, [20] cryptocurrencies aren't usually backed by governments or accepted as legal tender. [21] We conclude that transactions using the arbitrage function don't create money benefits. Bullion generally refers to gold and silver bars or ingots which meet purity requirements. [22] According to Investopedia, bullion: • is used as a reserve asset by governments and central banks • can sometimes be considered legal tender • is used by institutional investors to hedge against inflation. According to Wikipedia, bullion coins are sometimes considered legal tender. [23] According to the Perth Mint, their bullion coins are legal tender in Australia. [24] We don't think bullion is money. While bullion coins might sometimes be recognised by a state as legal tender, that wouldn't apply to ingots or bars. Further, even bullion coins aren't in general circulation. They aren't generally accepted throughout the community as a means of payment. The criteria of money aren't met. | Detailed Reasoning - Are the financial benefits money equivalents?: 70. A financial benefit will be cash settlable under subsection 230-45(2) if it's a money equivalent. 71. The definition of 'money equivalent' has two limbs. Section 995-1 says: money equivalent means: (a) a right to receive money or something that is a *money equivalent under this definition; or (b) a *financial arrangement (within the meaning of section 230-45). 72. While the definition seems somewhat circular, we think it has an intelligible meaning. The reference to 'something that is a money equivalent under this definition' means a right to receive something covered by paragraph (b). A financial arrangement would be a money equivalent under paragraph (b). Therefore, a right to receive something that is a financial arrangement would be a money equivalent under paragraph (a). We think this reading is supported by paragraph 2.71 of the relevant Explanatory Memorandum, [25] which says a right to receive a financial arrangement will itself be cash settlable: 2.71 Because of this definition of 'money equivalent', a cash settlable right or obligation includes a right to receive, or obligation to provide, a financial arrangement which itself meets the test for a cash settlable financial arrangement, in addition to a right to receive, or obligation to provide, a right to such a financial arrangement, or a right to receive money. 73. Therefore, 'money equivalent' has three elements. Something will be a money equivalent if it's either: • a right to receive money: first part of paragraph (a) • a financial arrangement: paragraph (b) • a right to receive a financial arrangement: second part of paragraph (a). We apply these elements to the three arrangements in Table 7. | Detailed Reasoning - Cryptocurrency and bullion (holding) purchase contracts: a right to receive money: first part of paragraph (a) Not met. The company won't have rights to receive or give money for transactions under the arbitrage function. The company will receive one type of cryptocurrency and give another type of cryptocurrency in return. The same reasoning applies to the individual taxpayer for the period they were running the arbitrage function under their own name. As discussed in Table 3 , cryptocurrency as a stand-alone asset doesn't create any right to receive money - merely the potential to convert it into money through sale. Not met. The entities will receive cryptocurrency or bullion, not a right to receive money. a financial arrangement: paragraph (b) Not met. Rights and obligations under the smart contracts will be financial arrangements. As discussed at paragraphs 65 to 69, we think all trades under a single smart contract would be grouped as a single arrangement. [26] But even if each transaction was taken separately, the analysis would be the same. The rights to receive and obligations to provide cryptocurrency are dealt with to profit from short-term price fluctuations. Therefore, they're cash settlable under paragraph 230-45(2)(e). Nevertheless, while the rights and obligations to deal with cryptocurrency under the arbitrage function are financial arrangements, the underlying cryptocurrency assets won't be. • A right or obligation (or combination of them) will be a financial arrangement if they are cash settlable: subsection 230-45(1). • Subsection 230-45(2) explains when a right to receive, or an obligation to provide a financial benefit is cash settlable. Under paragraph 230-45(2)(a), the right or obligation will be cash settlable if the benefit is a 'money equivalent'. • However, the second element of the 'money equivalent' definition doesn't refer to the 'financial benefit' concept. Under paragraph (b) of the definition, something must (itself) be a financial arrangement to be a money equivalent. • Here, the financial benefit is the underlying cryptocurrency, not the corresponding (cash settlable) right or obligation. The underlying cryptocurrency asset is received or provided directly: the cryptocurrency itself isn't a right or obligation to provide a financial benefit, at least not in the sense used in paragraph 230-45(2)(a). [27] The cryptocurrency and bullion purchase contracts aren't financial arrangements, because they are excluded under paragraphs 230-45(1)(d),(e) and (f). a right to receive a financial arrangement: second part of paragraph (a). Not met for similar reasons to element 2. • The financial benefit under paragraph 230-45(2)(a) is the underlying cryptocurrency. • The financial arrangement recognised by section 230-45 is either the right to receive or the obligation to provide cryptocurrency (or both combined). • The cryptocurrency received or provided is neither a right to receive nor an obligation to provide cryptocurrency. Not met. Cryptocurrency and bullion aren't financial arrangements because they're excluded under paragraphs 230-45(1)(d),(e) and (f). Neither bullion, nor a purchase contract involving bullion, creates a right to receive a financial arrangement either. | Detailed Reasoning - Are there markets for the financial benefits that have a high degree of liquidity?: 74. The phase 'high degree of liquidity' and the term 'liquidity' aren't defined or explained in tax legislation, so we look to their ordinary meaning. An asset is liquid if it can be readily converted into money. The Macquarie Dictionary [28] says meanings of liquidity include: • "the state of having assets either in cash or readily convertible into cash" • "the general availability of funds in a market, as created by federal budget deficits, foreign exchange transactions, and bank holdings of liquid assets and statutory reserve deposits". 75. The Explanatory Memorandum [29] suggests the 'high degree of liquidity' requirement will be met if the relevant right or obligation could be readily traded in the relevant market. Paragraph 2.84 says a financial benefit will be readily convertible into money or a money equivalent and will be subject to a highly liquid market if, for example: • the financial benefit is a security or commodity traded in an active market • it's an amount of foreign currency that is readily convertible into the functional currency of the taxpayer • a right or obligation that is a publicly traded security for which the market isn't very active will still be readily convertible to cash and subject to a highly liquid market if the number of shares or other units for the security is small relative to the daily transaction volume for that security. However, the Explanatory Memorandum goes on to say that a right or obligation over the same security wouldn't be readily convertible if the number of shares or units is large relative to the daily transaction for that security. We apply these principles to cryptocurrency and bullion in Table 8. | Detailed Reasoning - Cryptocurrency - discussion: We summarise some propositions relevant to assessing cryptocurrency's liquidity in this paragraph. • Cryptocurrency is frequently traded on exchanges. [30] According to one academic article published in 2020, cryptocurrency is traded on over 100 exchanges worldwide. [31] • According to another academic study, it's difficult to determine the liquidity of cryptocurrency because there are many cryptocurrency exchanges, operating in many jurisdictions, which lack a consolidated data feed. [32] • Investopedia says that Bitcoin's liquidity has been variable. [33] This article says: The daily volume of Bitcoin was under $100 million per day in 2014, and sometimes it fell below $10 million. By early 2018, that number had grown to over $20 billion. However, the cryptocurrency has witnessed episodes of illiquidity. After the Bitcoin price crashed, volume often fell below $5 billion per day. However, Bitcoin's daily volume routinely exceeded $20 billion again by early 2020. • One academic study concluded that Bitcoin's liquidity varies between exchanges, and Bitcoin is less liquid than stocks. [34] • According to one cryptocurrency exchange (Kraken), the liquidity of Bitcoin "depends entirely on which exchange you're trading on." [35] • Coin X can be bought and sold on some cryptocurrency exchanges. According to Investopedia, some centralised exchanges supported Coin X but others don't. • The company trades in multiple types of cryptocurrency using multiple exchanges. • The company's monthly turnover for the period between July 20XX and Month 20XX fluctuated significantly. • The current version of the trading bot sends many thousands of transactions a day. • In a recent month, there were several thousand successful trades over a 7-day period. • The arbitrage function currently uses many different exchanges. All these exchanges are decentralised. • The arbitrage function uses a fixed number of starting coins, but an indeterminate number of intermediate coins. It's impractical to keep track of intermediate coins because the arbitrage software can identify and use completely new coins after they are added to a decentralised exchange. The discretionary trust acquired x Coin X tokens from the individual taxpayer on date X during the 20XX income year. According to Investing.com, the 24 hour trading volume for Coin X on date X was more than 1 billion. [36] We can't determine this issue. We think there's uncertainty about whether the company's cryptocurrency dealings using the arbitrage function would meet the 'highly liquid market' requirement. • The variety of cryptocurrency types and the number of exchanges makes it difficult to make general conclusions about cryptocurrency liquidity. • The liquidity of even leading cryptocurrency types is variable. • Cryptocurrency isn't necessarily a 'security' in the sense used by the Explanatory Memorandum. It isn't clear whether daily trading volumes are an appropriate way to measure cryptocurrency liquidity. • The company constantly trades across many cryptocurrency exchanges and has a high volume of trading activity. • The company uses an indeterminate number of intermediate coins and the arbitrage function might use new coins recently added to an exchange. • Therefore, it doesn't necessarily follow that the company' transactions on any given day would be small compared to the daily trading for the relevant cryptocurrency types on the relevant exchanges. We think it's arguable that the discretionary trust's Coin X holding is a highly liquid asset. The purchase of Coin X is very small compared to the daily trading volume. However, it isn't clear whether daily trading volumes for cryptocurrency are relevant for this purpose. Whether any cryptocurrency holdings for the company outside the arbitrage function would be highly liquid would depend on the type and amount of cryptocurrency purchased, and daily trading activity at the relevant times. | Detailed Reasoning - Bullion - discussion: According to Investopedia, bullion can be bought and sold on markets and retail websites. [37] According to an article published on Forbes: [38] • gold 'has a much larger liquid market' than silver, and the price of gold is less volatile than silver • silver is more speculative and has a stronger relationship to economic activity because silver has industrial uses • coins are easier to trade and highly liquid (compared to bullion bars). The World Gold Council [39] and the London Bullion Market Association [40] describe gold as being a highly liquid asset. However, while also describing the gold market as being highly liquid, [41] Investopedia says bullion (compared to other forms of precious metal) is illiquid and inconvenient to hold. [42] The daily trading volume for gold fluctuated between 60 and 120 millions of ounces between 1996 and 2020, or about $15 and $100 billion USD. [43] The company holds less than x oz of silver and less than y oz of gold. (The quantities have been redacted for privacy concerns.) The relevant market will be highly liquid. There may be room for debate about the extent to which bullion is a highly liquid market. However, the company's investment is very small compared to daily trading volumes for gold bullion, so it's highly liquid for the purposes of this subsection. | Detailed Reasoning - Table 9: Are the financial benefits (not) subject to a substantial risk of a substantial decrease in value?: 76. For context, this discussion is about whether the requirement in subsection 230-45(4) is met. This requires that for the recipient of the relevant financial benefit, the amount of money or money equivalent (into which the benefit could be converted) is not subject to a substantial risk of a substantial decrease in value. | Detailed Reasoning - Cryptocurrency - discussion: We think it's common knowledge that cryptocurrency prices are highly volatile. • According to Investopedia, Bitcoin has experienced wild price swings, rapid surges and crashes, and is highly sensitive. [44] It reportedly fell by over 60% on single days in 2013 and 2014. [45] The price fell from about $17,000 in December 2017 to around $7,500 a few months later. [46] • Also according to Investopedia, Coin X prices experienced a significant decline during a recent calendar year. [47] For the arbitrage function, the amounts/values of cryptocurrency exchanged upon entering into the execution of the smart contract can vary from time to time. If another arbitrage trader is faster, their transaction will be executed before the relevant taxpayer, which could result in a trade failing, or returning a smaller profit than expected. It's also possible for ordinary trading activity to affect the state of the network, and alter the returns on a trade. The exchange rates within pools can change between the time the trading bot sends the transaction and when it is executed. The discretionary trust acquired x Coin X tokens from the individual taxpayer on date x during the 2021 income year. The trading volume for Coin X on date x was more than 1 billion. We think cryptocurrency, when purchased as an investment is subject to a substantial risk of a substantial decrease in value. Cryptocurrency prices can crash or decline in value. We think there's a very real risk that the price or value will have crashed between acquisition, and when the company or the discretionary trust seek to convert cryptocurrency to money. However, we don't think the same applies to transactions under the arbitrage function. • The smart contracts the taxpayers enter under the arbitrage function are short-term simultaneous trades. Cryptocurrency is delivered immediately on entering the transaction. • Even under the arbitrage function, exchange rates between pools can change between the time the trading bot requests a transaction, and when it is executed. There's a significant risk of some decline in value. • However, we don't think there's a substantial risk of a substantial decrease in value in that time. We understand the transactions would be entered virtually instantly, if successful. While substantial single-day crashes have happened, we don't think there's a substantial risk that the price would crash in the moments between sending and entering a transaction. The same reasoning wouldn't necessarily apply to cryptocurrency held for trading outside the arbitrage function. We expect that cryptocurrency held for trading through routine (non-automated) transactions would be held for longer periods and exposed to a higher risk of crashes. Where cryptocurrency is held for hours or days, rather than moments, the chance of a substantial decline in value would be much greater. | Detailed Reasoning - Bullion - discussion: According to Investopedia, the price of precious metals can be variable and have been described as volatile. [48] Gold prices have trended upwards and downwards for periods in recent decades. According to data from the World Gold Council, the London Bullion Market Association Gold Price declined from about $1,750 USD in 2013 to about $1,100 by 2016, before rising to around $2,000 in 2022. [49] Silver prices also fluctuate: Investopedia describes silver prices as being more volatile than gold. [50] Since precious metal prices are volatile, we think investments in gold and silver bullion would be subject to a substantial risk of a substantial decrease in value. | Detailed Reasoning - Table 10: Is the purpose of the relevant taxpayers to convert or liquidate the financial benefits into money or a money equivalent?: 77. As context, this Table is about whether paragraph 230-45(5)(b) is met. This paragraph is satisfied if one of the taxpayer's purposes for entering an arrangement is so that the financial benefit may be converted or liquidated into money or a money equivalent. However, it doesn't apply if that only happens as part of expected purchase, sale or usage requirements. | Detailed Reasoning - 230-45(5): This subsection is satisfied if your purpose, or one of your purposes, for entering into the arrangement under which you are to receive or provide the *financial benefit, is to receive or deliver the financial benefit: .... (b) if paragraph (a) does not apply - so that it may be converted or liquidated into money or a money equivalent (other than as part of your expected purchase, sale or usage requirements). Note: the relevant Explanatory Memorandum [51] said that this is intended to cover cash convertible and liquid financial benefits that are not money-like, but are intended to be used by taxpayers in a money-like manner: see paragraphs 3.29 and 3.30. We think this requirement is met. For the arbitrage transactions, whether paragraph 230-45(5)(b) is met will depend on the taxpayer's practices in converting cryptocurrency into money. • We understand that the company's overall purpose is to profit by arbitrage. • The company allows increases in starting coins to accumulate for some time before being sold for stablecoins. Stablecoins will eventually be traded for cash on a centralised exchange. • Starting coins may be held for some time, even months, before being converted to cash. • However, the company's established process is to convert cryptocurrency increases into money profits as part of a routine process. The same reasoning would apply to the individual taxpayer for the period they ran the arbitrage function under their own name. This requirement would be met for the company's stablecoin holdings: the company intends to convert them to cash. Whether this requirement would be met for cryptocurrency the company might acquire in future for use outside the arbitrage function would depend on its purpose. It wouldn't be met for long-term investments. But it might be met for cryptocurrency held for trading on regular exchanges. We don't think paragraph (b) could be met when cryptocurrency or bullion holdings are acquired as a long-term investment. While most investors will eventually realise long-term investments through sale or conversion, we don't think that's enough for paragraph (b) to be met. The long-term purpose of converting or liquidating the asset into money is a step removed from the purchase contract. We think the immediate purpose for the transaction is to acquire an investment which will (hopefully) increase in value, not to convert the investment into money. We think the interpretation we've adopted is consistent with the Explanatory Memorandum. The relevant taxpayers aren't intending to deal with the cryptocurrency or bullion in a 'money-like' manner. In our view, simply purchasing an asset in the expectation it will increase in value and lead to long-term monetary gains doesn't make the purchase contract 'money-like'. To make a rough analogy, purchasing an investment property or share portfolio couldn't be described as 'money-like' just because the purchaser had a long-term intention to sell. | Detailed Reasoning - Bullion investment: This Division does not apply in relation to your gains and losses from a *financial arrangement if: (a) the arrangement is a financial arrangement under section 230-45 ; and Met. See Table 3. Not met. See Table 3. Not met. See Table 3. (b) either: (i) you acquired goods or other property (other than goods that are, or property that is, money or a *money equivalent) or services (other than services that are a money equivalent) from another entity and the *financial benefits you are to provide under the arrangement are consideration for those goods, that property, or those services; or Met. The company acquires cryptocurrency in exchange for cryptocurrency. Cryptocurrency is property: it's an intangible asset forming a bundle of rights. See paragraphs 78 and 79. The company gave Coin A, Coin B and Coin C to other parties under the arrangement, as consideration for Coin A, Coin B and Coin C. Cryptocurrency isn't money or a money equivalent. The same reasoning would apply to the individual taxpayer for the period they ran the arbitrage function under their own name. Met. The company and the discretionary trust acquired cryptocurrency in exchange for money. Cryptocurrency is property. See paragraphs 78 and 79. The financial benefits it gave were consideration for the property. Met. Taxpayer acquired bullion in exchange for money. Bullion is property. See paragraphs 80 and 81. The financial benefits it gave were consideration for that property. (ii) you provided goods or other property (other than goods that are, or other property that is, money or a money equivalent) or services (other than services that are a money equivalent) to another entity and the financial benefits you are to receive under the arrangement are consideration for those goods, that property or those services; and Met. The company acquired Coin A, Coin B and Coin C to other parties under the arrangement, as consideration for Coin A, Coin B and Coin C. The same reasoning would apply to the individual taxpayer for the period they ran the arbitrage function under their own name. Not met, but only one subparagraph in (b) need be met. Not met, but only one subparagraph in (b) need be met. (c) the period between the following is not more than 12 months: i) the time when you are to provide or receive the consideration (or a substantial proportion of it); ii) the time when you acquired or provided the property, goods or services (or a substantial proportion of them); and Met. Giving and acquiring happens simultaneously. Met. Delivery on purchasing is immediate. As explained at Table 3, we think the relevant arrangement is purchasing cryptocurrency. We don't think it makes sense to characterise cryptocurrency or cryptocurrency holdings as an arrangement in the relevant sense. Met. Delivery on purchasing is immediate. As explained at Table 3, we think the relevant arrangement is purchasing bullion. We don't think it makes sense to characterise bullion or bullion holdings as an arrangement in the relevant sense. (d) The arrangement is not a *derivative financial arrangement in any income year; and Note: derivative financial arrangement is defined in 230-350 Met - it isn't a derivative financial arrangement. See discussion at paragraphs 82 to 84. Met. Purchasing cryptocurrency isn't a derivative financial arrangement. While the value of cryptocurrency changes, there won't be any change in a transaction where delivery is immediate. See discussion at paragraph 85. Met. Purchasing bullion isn't a derivative financial arrangement. While the value of bullion changes, there won't be any change in a transaction where delivery is immediate. See discussion at paragraph 85. (e) a *fair value election does not apply to the arrangement. Broadly, you can make a fair value election if you prepare an audited financial report in accordance with accounting and auditing principles: see section 230-210 . Met. The company (and before that, the individual taxpayer) aren't eligible to make a fair value election. The company prepares special purpose financial reports and doesn't have them audited. Unlike general purpose financial reports, special purpose financial reports don't need to comply with all Australian Accounting Standards. [52] Met for the same reasons as the arbitrage function. Met for the same reasons as the arbitrage function. | Detailed Reasoning - Is cryptocurrency property?: 78. The ATO view is that Bitcoin is property. TD 2014/26 [53] concludes that Bitcoin is a CGT asset for the purposes of subsection 108-5(1). To reach that conclusion, TD 2014/26 reasoned that Bitcoin was property because it gives holders rights over information. To summarise some points it makes: • property isn't a thing: it's a legal relationship describing the power that an entity can permissibly exercise over a thing, such as controlling access [paragraph 6] • there's no single test or determinative factor which identifies proprietary rights, but relevant considerations include excludability, commercial value, and enforceability [paragraph 7] • Bitcoin is a legal relationship giving an entity holding rights over certain digital information [paragraph 8] • Bitcoin holding rights allow an entity to trade Bitcoin, and use it for payment [paragraph 9] • those rights are proprietary because they have value, they're transferrable, and they're exclusive to the holder. [paragraphs 10-13] 79. While Bitcoin is just one type of cryptocurrency, we think any type of cryptocurrency would be property. Broadly, all cryptocurrency is digital information which can be used to make certain payments, and can be traded on cryptocurrency exchanges. [54] The holder has exclusive rights to use and trade the cryptocurrency. Those are proprietary rights which the holder can exercise over the underlying digital information. That relationship between the holder and the cryptocurrency is property. | Detailed Reasoning - Is bullion property?: 80. While TD 2014/26 is about Bitcoin, some points in it are relevant to determining whether other things are property. Property is a legal relationship about power over a thing. Considerations relevant to identifying proprietary rights include excludability, commercial value, and enforceability. As an aside, SMSFR 2010/1 [55] at paragraph 11 gives gold bullion as an example of tangible personal property. 81. We think bullion is property for similar reasons to why cryptocurrency is property. Bullion can be held, owned, and disposed. It has commercial value. Holding rights over bullion give the owner rights to exclude others from holding, using or selling it. | Detailed Reasoning - Is there a derivative financial arrangement?: 82. The phrase 'derivative financial arrangement' is explained in subsection 230-350(1). Broadly, it means a financial arrangement where its value changes as a specified variable changes: A derivative financial arrangement is a *financial arrangement that you have where: (a) its value changes in response to changes in a specified variable or variables; and (b) there is no requirement for a net investment, or there is such a requirement but the net investment is smaller than would be required for other types of financial arrangement that would be expected to have a similar response to changes in market factors. 83. In financial usage, a 'derivative' or a 'derivative security' usually means a security which depends on the value of some underlying security. Examples include forward contracts, futures, options and swaps. [56] 84. We don't think the arrangements entered by the trading bot meet the definition of a derivative financial arrangement. • The arrangement is a series of simultaneous straight swaps of one type of cryptocurrency for another: Coin A for Coin B, Coin B for Coin C, Coin C for Coin A. They are direct asset swaps. • They aren't agreements based on an external variable (like the price of an independent underlying asset, or independent factor like an interest rate). • While the conversion value for each transaction depends on the price of the relevant cryptocurrency, we don't think that's enough to be a 'derivative' financial arrangement. • The value of an agreement to immediately swap Coin A for Coin B won't change during the transaction, once entered. • That can be contrasted with a futures or option contract involving cryptocurrency. A cryptocurrency futures or option contract might qualify as a derivative financial arrangement because its value would change depending on changes in the price of the underlying cryptocurrency. 85. Purchase contracts for cryptocurrency or bullion (held as a long-term investment) aren't derivative financial arrangements either. They aren't agreements based on an external variable. Rather, they are contracts to directly purchase an asset. The price for the transaction depends on the relevant asset's value. But that price is fixed upon entry and won't change afterwards. Again, that can be contrasted with a futures or option contract over cryptocurrency or bullion. | Detailed Reasoning - 230-530(1): This Division also applies to *foreign currency as if the currency were a right that constituted a *financial arrangement. Cryptocurrency isn't foreign currency. See Table 13. Bullion isn't a foreign currency. Bullion coins are issued by states, and have value. But they aren't in common circulation, and aren't generally recognised as monetary units. See Table 13. | Detailed Reasoning - 230-530(2): This Division also applies to a *non-equity share in a company as if the share were a right that constituted a *financial arrangement. Cryptocurrency isn't a non-equity share. See Table 14. Bullion isn't a non-equity share. It doesn't give the holder any share in a company's capital, any membership rights, rights to returns from a company, and isn't convertible into shares. See Table 14. | Detailed Reasoning - 230-530(3): This Division also applies to a commodity that you hold as if the commodity were a right that constituted a *financial arrangement if: (a) you are an entity that trades or deals [57] both in: (i) that commodity; and (ii) financial arrangements whose values change in response to changes in the price or value of that commodity; and Is cryptocurrency a commodity? We think there's significant doubt about whether cryptocurrency is a commodity. However, we don't need to determine this issue because paragraph (3)(c) isn't met. See Table 15. Even if it was a commodity, paragraph (3)(a) mightn't be met anyway. The company (individual taxpayer) trades or deals (traded or dealt) in cryptocurrency, to arbitrage from price fluctuations. We understand that there's some risk the value of cryptocurrency will change between sending a transaction and completing a transaction. However, once the contract is entered, the financial arrangement is completed instantly. In that case, the value of the financial arrangement isn't at risk from cryptocurrency price changes. We think there's significant doubt about whether cryptocurrency is a commodity. However, we don't need to determine this issue because paragraph (3)(c) isn't met. See Table 15. If it was a commodity, there's still doubt about whether paragraph 3(a) would be met for the company's cryptocurrency holdings covered by the arbitrage function. If the arbitrage function was covered by paragraph (3)(a), there's doubt about whether the paragraph would extend to other cryptocurrency holdings. It isn't clear whether the relevant 'commodity' means the particular holding being presently considered, or whether it extends to cover all commodities held by the taxpayer, irrespective of howthey are held or used. In other words, if the company holds some of its cryptocurrency for trading, that might not necessarily be enough for this provision to apply to other holdings which aren't held for trading. Paragraph (3)(a) wouldn't be met for the discretionary trust as it doesn't deal in any financial arrangements involving cryptocurrency. Is bullion a commodity? Yes. See Table 15. However, the requirement in paragraph (3)(a) still won't be met. The company has had some dealings with bullion, but it hasn't entered financial arrangements whose values change in response to changes in the price or value of bullion. There's no suggestion the company deals in bullion derivatives - like options, swaps or futures. (b) you hold that commodity for the purposes of dealing in the commodity; and Met. The company holds cryptocurrency for purposes including dealing in it. The same applies to the individual taxpayer for the period they were running the arbitrage function under their own name. As above. If cryptocurrency was a commodity, paragraph (3)(b) would arguably be met. However, paragraph (3)(b) won't be met for the discretionary trust, which is simply holding all of its cryptocurrency as a long-term investment. Not met. The company is holding bullion as a long-term investment, not for the purpose of dealing in it. (c) a *fair value election or an *election to rely on financial reports applies to financial arrangements that you start to have when you start to have the commodity; and The taxpayers just use special purpose financial reports, and don't have them audited. Unlike general purpose financial reports, special purpose financial reports don't need to comply with all Australian Accounting Standards. Therefore, they aren't eligible to make a fair value election or rely on financial reports. (d) the commodity is an asset that you are required (whether or not as a result of a choice you make) by: (i) the *accounting principles; or (ii) if the accounting principles do not apply to the preparation of the financial report - comparable standards for accounting that apply to the preparation of the financial report under a *foreign law; to classify or designate, in your financial reports, as at fair value through profit or loss. This might be met, but we don't need to determine this issue because paragraph (3)(c) isn't met. We understand the company plans to apply AASB 102 Inventories. [58] Paragraph 5 of AASB 102 Inventories suggests that commodity/broker traders can report at fair value through profit and loss. We don't need to determine this issue because paragraph (3)(c) isn't met. We don't have any information suggesting that the entities would be required to classify long-term cryptocurrency holdings at fair value through profit or loss. We don't need to determine this issue because paragraphs (3)(a), (b) and (c) aren't met. We don't have any information suggesting that the entities would be required to classify long-term bullion investments at fair value through profit or loss. | Detailed Reasoning - 230-530(4): This Division also applies to a contract to which you are a party as if the contract were a *financial arrangement if: (a) you have a right to receive or an obligation to provide a commodity under the contract; and We think there's significant doubt about whether cryptocurrency is a commodity. However, we don't need to determine this issue because paragraph (4)(d) isn't met. See Table 15. We think there's significant doubt about whether cryptocurrency is a commodity. However, we don't need to determine this issue because paragraph (4)(d) isn't met. See Table 15. Met. The bullion purchase contracts give the company a right to receive bullion. Bullion is a commodity. See Table 15. (b) you have a practice of dealing in the commodity through the performance of offsetting contracts to receive and provide the commodity; and We don't need to determine this issue because paragraph (4)(d) isn't met. However, it would arguably be met for the short-term trading under the arbitrage arrangements. In the example given in the facts, the effect of the transaction to swap Coin A for Coin B is offset by transactions to swap Coin B for Coin C, and Coin C for Coin A. The three transactions have an offsetting effect for obligations to receive and provide cryptocurrency Arguably met for the company. It deals in cryptocurrency through short-term trading under the arbitrage arrangements. The discretionary trust won't meet this paragraph because it doesn't enter arbitrage transactions. Not met. The company doesn't perform offsetting contracts to receive and provide bullion - it has only purchased bullion. (c) you do not have, as your sole or dominant purpose for entering into the contract, the purpose of receiving or delivering the commodity as part of your expected purchase, sale or usage requirements; and Unclear if this is met, but we don't need to determine this issue because paragraph (4)(d) isn't met. Arguably receiving and delivering is part of the expected purchase and sale requirements. Volume would suggest the company is a cryptocurrency trader. The individual taxpayer may have been for a cryptocurrency trader for the period they were running the arbitrage function under their own name. Met. The company and the discretionary trust aren't entering the cryptocurrency purchase contracts to meet any purchase, sale, or usage requirements. Met. The company isn't entering the transaction for the purpose of meeting any purchase, sale, or usage requirements. (d) a *fair value election or an *election to rely on financial reports applies to financial arrangements that you start to have when you enter into the contract; and As for subsection 230-530(3). All taxpayers just use special purpose financial reports and don't have them audited. Not eligible. (e) the contract is an asset or liability that you are required (whether or not as a result of a choice you make) by: i) the *accounting principles; or (ii) if the accounting principles do not apply to the preparation of the financial report - comparable standards for accounting that apply to the preparation of the financial report under a *foreign law; to classify or designate, in your financial reports, as at fair value through profit or loss. This might be met, but we don't need to determine this issue because paragraph (4)(d) isn't met. We understand The company plans to apply AASB 102 Inventories [59] . Paragraph 5 of AASB 102 Inventories suggests that commodity/broker traders can report at fair value through profit and loss. We don't need to determine this issue because paragraph (4)(d) isn't met. We don't have any information suggesting that the entities would be required to classify cryptocurrency holdings at fair value through profit or loss. We don't need to determine this issue because paragraph (4)(d) isn't met. We don't have any information suggesting that the entities would be required to classify long-term bullion investments at fair value through profit or loss. | Detailed Reasoning - Application: Section 995-1 says foreign currency means a currency other than Australian currency. Currency isn't defined. The Macquarie Dictionary [60] says meanings of currency include: • "that which is current as a medium of exchange; the money in actual use" • "circulation, as of coin." TD 2014/25 [61] is a relevant ATO document giving our view on the meaning of 'foreign currency'. To elaborate: • it suggests currency is money issued under a country's laws as a universal medium of exchange of wealth [paragraph 18] • Australian currency means the monetary unit established under the Currency Act to discharge monetary obligations [31] • foreign currency similarly means money used and recognised under the laws of another country as a unit of account and means of discharging monetary obligations in that other country [32] • Bitcoin isn't a monetary unit recognised and adopted by the laws of any other sovereign state. [33] Cryptocurrency isn't foreign currency. It isn't a monetary unit used and recognised as a means of exchange in any foreign country. We're aware of reports that Bitcoin has been endorsed as legal tender in El Salvador. [62] However, we don't think that it can be described as a monetary unit, or that it has the level of general acceptance in El Salvador to be characterised as currency. Bullion isn't a foreign currency either. Bullion coins are issued by states, and have value. But they aren't in common circulation, and aren't generally recognised as monetary units. | Detailed Reasoning - Application: Section 995-1 says: • non-equity share means a share that is not an equity interest in the company • share in a company means a share in the capital of the company, and includes stock. Section 974-70 says a scheme gives rise to an equity interest in a company if it meets the equity test in section 974-75. The equity test in section 974-75 (for a company) is met if it gives rise to an interest: • in the company as a member or stockholder • carrying a right to a variable or fixed return from the company, contingent on its economic performance • carrying a right to a variable or fixed return from the company at the company's discretion • giving the holder rights to be issued with equity interests, or convertible to equity interests. Cryptocurrency isn't a non-equity share for two reasons. First, it isn't a share because it doesn't give the holder a share in any company's capital. Second, it doesn't create any rights which meet the equity test in section 974-75 because cryptocurrency: • doesn't give the holder membership or shareholding rights in a company. • doesn't give the holder any rights to returns from a company. • isn't convertible to shares. Bullion isn't a non-equity share either for similar reasons. It doesn't give the holder any share in a company's capital, any membership rights, rights to returns from a company, and isn't convertible into shares. | Detailed Reasoning - Application: Commodity isn't defined in tax legislation. The Explanatory Memorandum to the TOFA rules doesn't explain the term either. Therefore, we need to look to the ordinary meaning. The Macquarie Dictionary [63] says commodity means: noun ( plural commodities ) 1. a thing that is of use or advantage. 2. an article of trade or commerce. 3. Obsolete a quantity of goods. Investopedia [64] says: A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. They are most commonly used in the production of other goods or services. Examples include barrels of oil, bushels of wheat, megawatt hours of electricity. An online article published by Forbes [65] suggests Bitcoin is a 'digital commodity': With Bitcoin, a new kind of commodity has been discovered. No commodity you could touch, like chemical elements known as gold, silver, platinum, or even uranium. Instead, Bitcoin is a kind of digital commodity , generated by computers and partly made for computers. Cryptocurrencies may be commodities under some foreign laws, but this isn't universal. According to the US Commodity Futures Trading Commission, virtual currencies, such as Bitcoin and ether, are commodities under the Commodity Exchange Act. [66] However, according to HMRC, cryptoassets aren't commodities for UK tax purposes. [67] Investopedia uses the term 'crypto-commodity' to describe assets used as tokens on a blockchain network. It says the term can also refer to cryptocurrencies that are legally regulated and traded as commodities. [68] Investopedia lists gold and silver as examples of commodities traded in commodities markets. [69] We think there's significant doubt whether cryptocurrency is a commodity. The ordinary meaning of 'commodity' may just include tangible commodities used in trade. It doesn't necessarily extend to digital items like cryptocurrency. • General finance usage seems to refer to tangible goods - oil, wheat or electricity. Electricity is still a physical thing even though you can't see it. Goods don't usually include non-physical things like money, IP or information. Cryptocurrency isn't a physical good. • The Macquarie Dictionary reference to 'an article of trade or commerce' doesn't explicitly say it has to be physical. • Cryptocurrency has arguably become a recognised item of trade and commerce. Terms like 'digital commodity' and 'crypto commodity' imply that digital assets like cryptocurrency has acquired that status. • However, 'commodity' without the prefix 'digital' or 'crypto' is generally used for physical items. In the more specific phrases, the prefix is arguably used as a point of contradistinction rather than classification. In other words, 'digital' or 'crypto' distinguishes a commodity from a normal commodities. It doesn't necessarily identify a subset of things which are already within the ordinary meaning of commodity. • While the US commodities regulator regards some cryptocurrencies as commodities under US law, it doesn't necessarily follow that cryptocurrency is a commodity for Australian tax purposes. We're not convinced that the current ordinary meaning of 'commodity' extends to cryptocurrency. But we don't need to determine this issue because the relevant taxpayers aren't eligible to make a fair value election. We think gold and silver bullion are commodities because they are physical items used in trade and commerce. [1] According to Investopedia, a stablecoin is a class of cryptocurrencies which peg their market value to an external reference. That external reference could be a currency like the US dollar, or a commodity like gold. Investopedia (January 2022) 'Stablecoin', https://www.investopedia.com/terms/s/stablecoin.asp#:~:text=Stablecoins%20are%20cryptocurrencies%20that%20attempt,commodity%27s%20price%20such%20as%20gold accessed 31 March 2022. [2] For example, section 230-460 is a list of miscellaneous rights or obligations, covering leases, partnership or trust interests, insurance policies, and others. See also section 230-465 (ceasing to have a financial arrangement), section 230-470 (forgiveness of commercial debts), section 230-475 (clarifying exceptions, mainly about residential care), section 230-480 (gains from franked distributions) and section 230-481 (registered emission units). [3] This is a shorthand summary. Some of the relevant entity types are defined terms, but we won't bother describing or applying them because we have no information to suggest they're relevant on these facts. [4] As above, this is a shorthand summary. Some of the relevant entity types are defined terms, but we won't bother describing or applying them because we have no information to suggest they're relevant on these facts. [5] Qualifying security is a defined term, but we won't bother describing it here because it isn't relevant. The transactions covered by the arbitrage function, the cryptocurrency purchase contracts and the bullion purchase contracts are all instantaneous, so paragraph 230-455(1)(e) is met. [6] We summarise a few defined terms here. Broadly, aggregated turnover includes include the annual turnovers of the entity, any entities connected with it, or its affiliates: section 328-115. Annual turnover is ordinary income derived in the ordinary course of carrying on a business: section 328-120. For a part year, aggregated turnover can be worked out using a reasonable estimate of what the entity's turnover would have been, had it carried on business for the whole year: subsection 328-120(5). An entity is connected with another entity if either entity controls the other, or both entities are controlled by the same third entity: subsection 328-125(1). Broadly, an entity controls a company if it has at least 40% of its income, capital, or votes: subsection 328-125(2). An entity controls a discretionary trust if it receives at least 40% of income or capital, or the trustee acts according to its directions or wishes: subsection 328-125(3). An individual or a company can be an affiliate if it acts in accordance with the other entity's directions, wishes, or in concert with it in relation to its business affairs: section 328-130. [7] (This footnote discussed the company's turnover. This discussion has been redacted in this edited version for privacy concerns.) [8] Section 995-1 says 'arrangement' has a very broad meaning, covering agreements, understandings, promises or undertakings, whether express or implied, and whether or not enforceable through legal proceedings. [9] Cryptocurrency is property: it's a bundle of ownership/holding rights attaching to digital information. See generally 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? . Arguably, cryptocurrencies could be described as arrangements to the extent their recognition depends on rules or generally accepted understandings between members of a cryptocurrency community. However, a cryptocurrency holding doesn't directly create a right or obligation to give or receive a financial benefit. [10] See Investopedia (January 2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 24 January 2022. [11] See Investopedia (January 2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 24 January 2022. [12] World Gold Council (2011) 'Liquidity in the global gold market' https://www.gold.org/sites/default/files/documents/gold-investment-research/liquidity_in_the_global_gold_market.pdf, accessed 10 March 2022; Investopedia (March 2021) 'Bullion' https://www.investopedia.com/terms/b/bullion.asp, accessed 9 March 2022; Investopedia (February 2022) 'How do you purchase physical gold bars?' https://www.investopedia.com/articles/investing/072316/how-do-you-purchase-physical-gold-bars.asp, accessed 9 March 2022; Investopedia (July 2021) 'Bullion Market' https://www.investopedia.com/terms/b/bullion-market.asp, accessed 9 March 2022. [13] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=money, accessed 1 March 2022. [14] The Macquarie Dictionary says meanings of 'currency' include "that which is current as a medium of exchange; the money in actual use" and "circulation, as of coin". Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=currency, accessed 1 March 2022. [15] 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? [16] See Investopedia (September 2021) 'El Salvador Becomes Bitcoin Laboratory as First Nation to Adopt it as Legal Tender', https://www.investopedia.com/el-salvador-accepts-bitcoin-as-legal-tender-5200470, accessed 1 March 2022. [17] See Investopedia (March 2022) '10 Important Cryptocurrencies Other Than Bitcoin', https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/, accessed 8 March 2022. [18] Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 8 March 2022; Investopedia (November 2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 8 March 2022. [19] Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 8 March 2022; Investopedia (November 2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 8 March 2022. [20] According to Investopedia, Dodgecoin is accepted as payment by the Dallas Mavericks, Kronos and SpaceX. See Investopedia (March 2022) '10 Important Cryptocurrencies Other Than Bitcoin', https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/, accessed 8 March 2022. [21] See generally Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 8 March 2022; Investopedia (November 2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 8 March 2022. [22] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=money, accessed 11 March 2022; Wikipedia (February 2022), 'Bullion', https://en.wikipedia.org/wiki/Bullion, accessed 9 March 2022; Investopedia (February 2021) 'Bullion Coins', https://www.investopedia.com/terms/b/bullion-coins.asp, accessed 9 March 2022. [23] Wikipedia (February 2022), 'Bullion', https://en.wikipedia.org/wiki/Bullion, accessed 9 March 2022. [24] The Perth Mint, Australia (2022) 'Gold, silver and platinum bullion' https://www.perthmint.com/bullion/information-for-bullion-buyers/, accessed 11 March 2022. [25] Explanatory Memorandum (House of Representatives) to the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2009. [26] The concluding words to subsection 230-45(1) say "[t]he right, obligation or combination covered by paragraph (a), (b) or (c) constitutes the financial arrangement." Paragraphs 230-45(1)(a),(b) and (c) refer to cash settlable rights to receive financial benefits, obligations to provide financial benefits, or a combination. The combination of benefits and obligations under a smart contract would most likely be the financial arrangement. [27] Property is itself merely a description of legal relationships over things, which create rights or obligations. Property has been described as a 'bundle of rights', and the same can be said of proprietary rights over cryptocurrency. See generally 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? However, ownership rights over cryptocurrency are still different from the right to receive ownership rights over cryptocurrency . The latter might be a financial arrangement. The former isn't. [28] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=liquidity, accessed 8 March 2022. [29] Explanatory Memorandum (House of Representatives) to the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2009. [30] Investopedia (November 2021) 'Cryptocurrency Exchanges: What They Are and How to Choose' https://www.investopedia.com/tech/190-cryptocurrency-exchanges-so-how-choose/, accessed 8 March 2022; Makarov, I, Schoar, A (2020) 'Trading and arbitrage in cryptocurrency markets', Journal of Financial Economics, vol 135, no 2, pp 293-319; Brauneis, A, Mestel, R, Riordan, R, Theissen E (2021) 'How to measure the liquidity of cryptocurrency markets?' Journal of Banking & Finance, vol 124. [31] Makarov, I, Schoar, A (2020) 'Trading and arbitrage in cryptocurrency markets', Journal of Financial Economics, vol 135, no 2, pp 293-319. [32] Brauneis, A, Mestel, R, Riordan, R, Theissen E (2021) 'How to measure the liquidity of cryptocurrency markets?' Journal of Banking & Finance, vol 124. [33] Investopedia (July 2021) 'Liquidity of Bitcoin' https://www.investopedia.com/articles/investing/112914/liquidity-bitcoins.asp, accessed 15 March 2022. [34] Loi H (2017) 'The Liquidity of Bitcoin' International Journal of Economics and Finance, vol 10, issue 1. [35] Kraken (2020) 'Cryptocurrency and Bitcoin Liquidity' https://www.kraken.com/features/liquidity, accessed 8 March 2022. [36] Investing.com (2022) (website), accessed 31 March 2022. [37] Investopedia (March 2021) 'Bullion' https://www.investopedia.com/terms/b/bullion.asp, accessed 9 March 2022; Investopedia (February 2022) 'How do you purchase physical gold bars?' https://www.investopedia.com/articles/investing/072316/how-do-you-purchase-physical-gold-bars.asp; accessed 9 March 2022. Investopedia (July 2021) 'Bullion Market' https://www.investopedia.com/terms/b/bullion-market.asp, accessed 9 March 2022. [38] Forbes (May 2018) '5 Questions to ask yourself before buying precious metals', https://www.forbes.com/sites/oliviergarret/2018/05/21/5-questions-to-ask-yourself-before-buying-precious-metals/?sh=19cbd1706f92, accessed 10 March 2022. [39] World Gold Council (April 2011) 'Liquidity in the global gold market' https://www.gold.org/sites/default/files/documents/gold-investment-research/liquidity_in_the_global_gold_market.pdf accessed 10 March 2022; World Gold Council (March 2022) 'Methodology: Gold market liquidity metrics 2022 Update' https://www.gold.org/goldhub/data/trading-volumes, accessed 10 March 2022. [40] Murray, S (2011) 'Loco London Liquidity Survey' Alchemist Vol. 63, pp 9-10, London Bullion Market Association. [41] Investopedia (March 2021) 'How to Trade Gold in Just 4 Steps' https://www.investopedia.com/articles/investing/100915/learn-how-trade-gold-4-steps.asp, accessed 10 March 2022. [42] Investopedia (March 2021) 'How to Trade Gold in Just 4 Steps' https://www.investopedia.com/articles/investing/100915/learn-how-trade-gold-4-steps.asp, accessed 10 March 2022. [43] World Gold Council (April 2011) 'Liquidity in the global gold market' https://www.gold.org/sites/default/files/documents/gold-investment-research/liquidity_in_the_global_gold_market.pdf accessed 10 March 2022; [44] Investopedia (January 2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 24 January 2022. [45] Investopedia (2021) 'Bitcoin Definition' https://www.investopedia.com/terms/b/bitcoin.asp, accessed 11 March 2022. [46] Investopedia (2022) 'Cryptocurrency' https://www.investopedia.com/terms/c/cryptocurrency.asp, accessed 11 March 2022. [47] Investopedia (February 2022), accessed 9 March 2022. [48] Investopedia (May 2021) 'A Beginner's Guide to Precious Metals' https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp#citation-8, accessed 10 March 2022. [49] Investopedia (March 2021) 'How to Trade Gold in Just 4 Steps' https://www.investopedia.com/articles/investing/100915/learn-how-trade-gold-4-steps.asp, accessed 10 March 2022; Federal Trade Commission (April 2014) 'Prepared Statement of the Federal Trade Commission on Exploring the Perils of the Precious Metals Market' https://www.ftc.gov/system/files/documents/public_statements/302591/140430perilsofpreciousmetals.pdf, accessed 10 March 2022; World Gold Council (March 2022) 'Gold prices' https://www.gold.org/goldhub/data/gold-prices, accessed 10 March 2022. [50] Investopedia (May 2021) 'A Beginner's Guide to Precious Metals' https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp#citation-8, accessed 10 March 2022. [51] Explanatory Memorandum to the Tax Laws Amendment (2010 Measures No. 4) Bill 2010. [52] Broadly, special purpose financial statements are financial statements prepared by entities (often known as 'non-reporting entities') which aren't required to demonstrate full compliance with Australian Accounting Standards: see Australian Accounting Standards Board (AASB), July 2021, Accounting Standard AASB 1053 Application of Tiers of Australian Accounting Standards at paragraph BC5. These can be contrasted with general purpose financial statements which are prepared by entities which are required to comply with Australian Accounting Standards . Broadly, entities covered by Australian Accounting Standards Board (AASB) Accounting Standard ASSB 1057 Application of Australian Accounting Standards are required to apply Australian Accounting Standards. AASB 1057 applies to entities required to prepare financial reports under the Corporations Act, not-for-profit reporting entities, and other entities required by law to comply with Australian Accounting Standards. [53] 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? [54] See generally Investopedia (January 2022) 'Cryptocurrency', https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 9 March 2022. [55] Self Managed Superannuation Funds Ruling SMSFR 2010/1 Self Managed Superannuation Funds: the application of subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 to the acquisition of an asset by a self managed superannuation fund from a related party. [56] Pierson G, Brown, R, Easton S, Howard P, Pinder S (2015) Business Finance, 12 th edn,McGraw Hill Education, Sydney, page 7; Investopedia (October 2021) 'Derivative', https://www.investopedia.com/terms/d/derivative.asp, accessed 25 January 2022. [57] The Macquarie Dictionary says meanings of 'deal' include 'a business transaction', and 'a bargain or arrangement for mutual advantage, as in commerce or politics, often a secret or underhand one'. Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=deal, accessed 14 March 2022. [58] Australian Accounting Standards Board (AASB), July 2015, Accounting Standard AASB 102 Inventories. [59] Australian Accounting Standards Board (AASB), July 2015, Accounting Standard AASB 102 Inventories. [60] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=currency, accessed 14 March 2022. [61] 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? [62] See Investopedia (September 2021) 'El Salvador Becomes Bitcoin Laboratory as First Nation to Adopt it as Legal Tender', https://www.investopedia.com/el-salvador-accepts-bitcoin-as-legal-tender-5200470, accessed 1 March 2022. [63] Macmillan Publishers Australia, The Macquarie Dictionary online, https://www.macquariedictionary.com.au/features/word/search/?search_word_type=Dictionary&word=commodity, accessed 27 January 2022. [64] Investopedia (January 2022), 'Commodity' https://www.investopedia.com/terms/c/commodity.asp, accessed 27 January 2022. [65] Forbes (March 2021) 'What is Bitcoin? The Discovery of the First 'Digital Commodity'' https://www.forbes.com/sites/philippsandner/2021/03/04/what-is-bitcoin-the-discovery-of-the-first-digital-commodity/?sh=2008f62d4759 accessed 16 March 2022. [66] Commodity Futures Trading Commission 'Bitcoin Basics' https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf, accessed 15 March 2022; Commodity Futures Trading Commission (October 2019) 'Release Number 8051-19 October 10, 2019' https://www.cftc.gov/PressRoom/PressReleases/8051-19, accessed 15 March 2022; Commodity Futures Trading Commission, 'An Introduction to Virtual Currency' https://www.cftc.gov/sites/default/files/idc/groups/public/%40customerprotection/documents/file/oceo_aivc0218.pdf, accessed 15 March 2022. See also US Securities and Exchange Commission (June 2021) 'Funds Trading in Bitcoin Futures - Investor Bulletin' https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_fundstrading, accessed 15 March 2022; Investopedia (October 2021) 'Crypto Commodity' https://www.investopedia.com/terms/c/crypto-commodity.asp, accessed 15 March 2022. [67] Her Majesty's Revenue and Customs (2001), 'HMRC internal manual: Cryptoassets Manual: CRYPT048000 - Cryptoassets for businesses: Digital Services Tax and Cryptoasset Exchanges' https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto48000, accessed 16 March 2022. [68] Investopedia (October 2021) 'Crypto Commodity' https://www.investopedia.com/terms/c/crypto-commodity.asp, accessed 15 March 2022. [69] Investopedia (October 2021) 'Commodity Market' https://www.investopedia.com/terms/c/commodity-market.asp, accessed 10 March 2022.