Edited version of private advice

Authorisation Number: 1052162005098

Date of advice: 26 September 2023

Ruling

Subject:GST registration and crypto asset trading

Question 1

Are you carrying a cryptocurrency trading business in the financial year ended 30 June 20XX?

Answer

Yes.

Question 2

Are you required to register for GST under section 23-5 of the A New Tax System (Goods and Service Tax) Act 1999 (Cth) (GST Act)?

Answer

No.

Question 3

Are you making taxable supplies under section 9-5 of the GST Act when they trade crypto assets?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 December 20XX

Relevant facts and circumstances

You are not registered for GST.

You are not a non-profit body.

You began cryptocurrency trading since 20XX overseas and continue to conduct this activity when you migrated to Australia.

Your main source of income is solely from cryptocurrency short trading.

You funded the trading activities through personal cash outlay and borrowings from lending platforms.

Your investment strategy focuses on short-term techniques, including swing trading, to optimise returns and mitigate risks.

You facilitate the use of stop-loss orders. These orders are designed to limit the losses by automatically selling part of the holdings when it reaches a predetermined price level, thereby ensuring that any downside is kept within your risk tolerance.

You trade a variety of crypto assets. These crypto assets are traded on a digital currency exchange.

You cannot determine the location, residency or legal identity of the counterparty to their trades.

You spend on average eight hours a day, seven days a week conducting research and trading, of which three hours per day is for conducting trades and five hours is for research.

You utilise YouTube videos as a source of immediate updates and insights into the rapidly changing world of cryptocurrencies. You also use online platforms like TradingView for technical analysis.

You held crypto currencies for, on average, 14 hours before disposing of them.

You engaged in crypto trading activity with the prime intention of making a profit, not for long-term stability. The turnover of your cryptocurrency activities was in excess of $XX million.

During the 20XX-XX financial year, you made a significant number of buy and sell orders. Your trading activities involved more than XX different digital currencies.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997) section 6-5

Income Tax Assessment Act 1997 (ITAA 1997) section 995-1

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 9-5

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 9-10

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 9-20

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 9-25

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 9-27

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 9-40

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 23-5

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 23-10

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 23-15

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 40.5

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 188-10

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 188-15

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 188-20

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 195-1

A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) section 23.15.01

A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) section 40.5.08

A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) section 40.5.09

A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) section 196-1.01

Reasons for decision

Question 1

Summary

You had a purpose of profit as well as a prospect of profit, the activity had regularity and repetition, it was of the same kind and carried on in a business-like manner of similar activities, and its size and scale were sufficient that it would not be considered a hobby or form of recreation.

Detailed reasoning

There are 2 possible scenarios as to how gains and losses from cryptocurrency trading activities can be treated for income tax purposes. These scenarios and their consequences are as follows:

1. Business Income

In this scenario the cryptocurrency activities would be considered to constitute the carrying on of a business. Your cryptocurrency would be regarded as trading stock and any gains or losses would be included in your assessable income. Your income would be ordinary income and assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), while your expense would be deductible under section 8-1 of the ITAA 1997.

2. Investment Income

In this situation your cryptocurrency trading activities would be regarded as investing. Your cryptocurrency assets are considered capital gains tax (CGT) assets. Any gains resulting from the disposal of cryptocurrency would be income as a capital gain. Any losses sustained on the disposal of your cryptocurrency would be a capital loss. Your income would be statutory income and assessable under section 102-5 of the ITAA 1997, while a loss would be deductible under section 102-10 of the ITAA 1997.

To determine which of these treatments applies to your situation it is necessary to make a determination of whether or not your cryptocurrency activities amount to the carrying on of a business.

The Commissioner's view on whether a taxpayer is carrying on a business is set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11).

TR 97/11 identifies the following indicators for consideration to determine whether a taxpayer is carrying on a business:

•                     whether the activity has a significant commercial purpose or character

•                     whether the taxpayer has more than just an intention to engage in business

•                     whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

•                     whether there is repetition and regularity of the activity

•                     whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business

•                     whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit, the size, scale and permanency of the activity, and

•                     whether the activity is better described as a hobby, a form of recreation or a sporting activity.

In determining whether a taxpayer is carrying on a business, no one indicator will be decisive. The indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the large or general impressions gained from looking at all the indicators and whether these indicators provide the operations with a commercial flavour.

Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

Whether the activity has a significant commercial purpose or character

The activity of buying and selling cryptocurrency is a commercial activity, particularly where cryptocurrency is held in the short term for resale at a profit. In your case, you acquired in cryptocurrency with the intention of making a profit. The turnover of transactions involved is more than $100 million

Whether the taxpayer has more than an intention to engage in business

You acquired and disposed of cryptocurrency with the intention of engaging in business rather than it being a hobby. Whilst you were not employed full time in a paid role, you spent over 40 hours a week conducting trades and research.

Purpose of profit-making

You had the intention of a profit-making exercise as well as a prospect of profit.

Whether there is repetition and regularity of the activity

As noted above you acquired and disposed of cryptocurrency on multiple occasions during the relevant income year.

You held the cryptocurrency on average a total of 14 hours and conducted a significant number of transactions in a period of 6 months.

There is a high degree of repetition and regularity in your cryptocurrency transactions, that would indicate that a business activity was being carried on.

Whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit, the size, scale and permanency of the activity

You have an investment strategy where you focus on short-term techniques to optimise your returns and mitigate risks. You keep yourself informed of the latest trends through a variety of resources for technical analysis.

The frequency, the size and scale of your cryptocurrency acquisitions and disposals exhibits the size and scale that would be expected of a business of trading.

Whether the activity would be better described as a hobby, recreational or sporting activity

You advised that you spend eight hours a day, seven days per week conducting your trades. You are not working in a paid employment. The time spent carrying out these transactions is equivalent to a full-time employment.

Your activities show the characteristics of a business as you have shown repetition and regularity of trades, along with a profit motive. The size and scale of your transactions give further indication that your activities do not have the nature of a hobby or recreational pursuit.

Conclusion

After weighing up the relevant business indicators and objective facts and based on the information and documentation provided, it is the Commissioner's view that the overall impression is that you are carrying on a business of cryptocurrency trading in the relevant income year.

Question 2

Summary

You are not required to register for GST as you are making input taxed financial supplies.

Detailed reasoning

GST Registration

You are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.[1]

Carrying on an enterprise

'Enterprise' is defined under paragraph 9-20(1)(a) of the GST Act to include, among other things, an activity, or a series of activities, done in the form of a business.

The phase 'carrying on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.[2]

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on and enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) considers the meaning of 'enterprise' for the purposes of determining an entity's entitlement to an Australian Business Number.

Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 confirms that the principles in MT 2006/1 apply equally to the term enterprise for GST purposes.[3]

Paragraph 178 of MT 2006/1 references TR 97/11 in discussion of the main indicators of carrying on a business.

Consequentially, we consider that your activities related to trading crypto assets, aligned with the reasoning provided under Question 1, to be in the form of a business and thus amount to an enterprise that you carry on.

Therefore, you meet the requirement under paragraph 23-5(a) of the GST Act.

Turnover threshold

Your GST turnover threshold is $75,000.[4]

Subsection 188-10(1) of the GST Act provides that you meet your GST turnover threshold if:

(a) your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

'Current GST turnover' is defined under subsection 188-15(1) of the GST Act to mean, among other things:

(1) Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

(a) supplies that are input taxed; or ...

'Projected GST turnover' is defined under subsection 188-20 of the GST Act to mean, among other things:

(1) Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a) supplies that are input taxed; or ...

If your current or projected GST turnover does not exceed $75,000, they will not be required to be registered for GST. However, if your current or projected GST turnover does not meet the registration turnover threshold of $75,000, they may choose to be registered for GST.[5]

To determine if your current or projected GST turnover exceeds $75,000, we must consider whether the supplies of their crypto assets would be an input taxed financial supply.

The term supply is broadly defined in subsection 9-10(1) of the GST Act to mean 'any form of supply whatsoever'. Without limiting subsection 9-10(1) of the GST Act, paragraph (f) of subsection (2) provides that a supply includes a financial supply. Subsection 9-10(4) of the GST Act provides that a supply does not include a supply of digital currency unless the digital currency is provided as consideration for a supply of money or digital currency.

Input taxed financial supplies

Subsections 40-5(1) and (2) of the GST Act provides that a financial supply is input taxed and has the meaning given by GST Regulations.[6]

Subsection 40-5.09(1) of the GST Regulations provides that:

(1) The provision, acquisition or disposal of an interest mentioned in the table in subsection (3) is a financial supply if:

(a) the provision, acquisition or disposal is:

(i) for consideration; and

(ii) in the course or furtherance of an enterprise; and

(iii) connected with the indirect tax zone; and

(b) the supplier is:

(i) registered or required to be registered; and

(ii) a financial supply provider in relation to supply of the interest.

The provision, acquisition or disposal of an interest in or under:

•         a digital currency or an agreement to buy or sell a digital currency is listed under item 9 in the table under subsection 40-5.09(3) of the GST Regulations (Item 9)

•         a derivate is listed under 11 of the table under subsection 40-5.09(3) of the GST Regulations (Item 11).

'Digital currency' is defined under section 195-1 of the GST Act:

digital currency means digital units of value that:

(a) are designed to be fungible; and

(b) can be provided as consideration for a supply; and

(c) are generally available to members of the public without any substantial restrictions on their use as consideration; and

(d) either:

(i) are not denominated in any country's currency; or

(ii) are denominated in a currency that is not issued by, or under the authority of, an Australian government agency or a foreign government agency (within the meaning of the Income Tax Assessment Act 1997); and

(e) do not have a value that depends on, or is derived from, the value of anything else; and

(f) do not give an entitlement to receive, or to direct the supply of, a particular thing or things, unless the entitlement is incidental to:

(i) holding the digital units of value; or

(ii) using the digital units of value as consideration;

but does not include a thing that, if supplied, would be a financial supply for a reason other than being a supply of:

(g) one or more digital units of value to which paragraphs (a) to (f) apply;

(h) money.

'Derivative' is defined under section 196-1.01 of the GST Regulations to mean 'an agreement or instrument the value of which depends on, or is derived from, the value of assets or liabilities, an index or a rate'.

Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) provides a further explanation of derivative under schedule 1:

Financial instruments such as options, forwards, futures, swaps, etcetera whose value is tied to or derived from an underlying security, commodity, currency, liability or index. Entities usually use derivatives to hedge against changes in interest rates and foreign exchange risks or to minimise business risks. ...

Based on the information provided, you would make input taxed financial supply:

• a digital currency under Item 9; and
• a derivative under Item 11.

Input taxed financial supplies are not included in calculating an entities GST turnover.[7] Therefore, your current and projected GST turnover does not exceed $75,000 and they will not be required to be registered for GST.

However, you may choose to be registered for GST.[8]

Question 3

Summary

You are not making taxable supplies of crypto assets under section 9-5 of the GST Act.

Taxable Supply

You are liable to pay for GST on any taxable supplies that you make.[9] You make a taxable supply under section 9-5 of the GST Act if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with the indirect tax zone; and

(d) you are registered, or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Based on the information provided, your supplies their crypto assets in course or further of an enterprise they carry on. Your supplies are connected with the indirect tax zone.

However, you are not registered for GST, and based on the reasons provide under question 2, are not required to be registered for GST. Therefore, you have not satisfied the requirement under paragraph 9-5(d) of the GST Act.

Your do not make a taxable supply when trading their crypto assets.

[1] GST Act paragraphs 23-5(a)-(b).

[2] GST Act section 195-1 (definition of 'carrying on').

[3] GSTD 2006/6 paragraph 1.

[4] GST Act subsection 23-15(1)(b); A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) section 23.15.01 (GST Regulations).

[5] GST Act subsection 23-10(1).

[6] See also subparagraph 40-5.08(a) of the GST Regulations which provides that '... a supply is a financial supply if ... the supply is a financial supply under section 40-5.09 and is not excluded by section 40-5.12'.

[7] GST Act sections 188-15(1)(a), 188-20(1)(a).

[8] GST Act subsection 23-10(1).

[9] GST Act section 9-40.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).