A common question investors ask is ‘Can I rely on the Personal User Exemption if I only invest less than $10,000 into Cryptocurrency?’
The ATO have given their own determination for the purpose of clarifying the ‘personal use asset’ treatment:
- Personal use assets are CGT assets, other than collectables, used or kept mainly for the personal use or enjoyment of you or your associates. Any personal use asset you acquired for less than $10,000 is disregarded for CGT purposes.”
- “The purpose for which the Bitcoin was acquired and kept, as well as the nature of the property acquired when the Bitcoin is disposed of for example, whether the Bitcoin is used to purchase an investment.”
- Bitcoin that is kept or used mainly to make purchases of items for personal use or consumption ordinarily will be kept or used mainly for personal use. Bitcoin that is kept or used mainly for the purpose of profit-making or investment, or to facilitate purchases or sales in the course of carrying on business is not used or kept mainly for personal use. Other categories of use conceivably could exist; taxpayers in these cases should seek private rulings.”
- Australian Taxation Office – https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia—specifically-bitcoin/
The interpretation on the ATO’s website can be very ambiguous to investors and traders. What we interpret the ATO’s guidance to be is that if Bitcoin or another Cryptocurrency was purchased with the INTENTION of being used to purchase personal items that are also less than $10,000 in value, then this could be seen as using the currency for a personal transaction.
There are varying factors that the ATO may consider in determining whether you purchased the Cryptocurrency for a personal transaction. These may include but are not limited to:
- How long you kept the cryptocurrency for prior to spending it. The longer you hold the cryptocurrency, the less likely you can rely upon this argument.
- Did you purchase the Cryptocurrency to participate in some sort of virtual game e.g. Cryptokitties
- What was the original intention and was there a specific reason that Cryptocurrency was used to buy the good or service?
An example of when Cryptocurrency can be used for the purposes of Personal use is when the Cryptocurrency is transferred to a card. For example a coinjar swipe card or a mobile wallet intended to be used for everyday transcaitons.
Lets say for example you wanted to spend your Cryptocurrency for everyday use or on a holiday.
Mark has been investing in Bitcoin. Upon making gains on his investment.
Mark decides to transfer some of his Bitcoin to a Coinjar swipe card in the intention of using some of his profits on an overseas trip to Japan on everyday purchases.
Upon the transfer of the Bitcoin to his swipe card, Mark has now changed his intention of the Bitcoin to personal use.
The transfer of that Bitcoin to the swipe card would be seen as a sale and Mark will need to work out whether he has made a gain on that particular sale. (depending on whether he is an investor or trader or the investor methods he uses, see
How long can you hold an asset and still claim the personal use CGT exemption?
There is no specific time frame but it would have to be fairly ‘reasonable’, a week at maximum or you may have a legitimate reason i.e you moved some of your crypto to a coinjar/tenx card to be used while on a holiday.