Experts consider court ruling that Bitcoin might be CGT-free

Legal and taxation experts are closely considering a new court ruling that found Bitcoin is akin to Australian currency, and potentially exempt from capital gains tax (CGT).

If that view is upheld in the courts, it could revolutionise the tax treatment of Bitcoin in Australia and open the door to many millions of dollars in refunded CGT obligations.

But that legal process is lengthy and uncertain, meaning today’s Bitcoin holders should not neglect the Australian Taxation Office’s (ATO) current guidance on crypto assets.

The Australian Financial Review (AFR) reports the finding emerged from a recent criminal case, in which a former Australian Federal Police officer was accused of stealing 81.6 Bitcoins in 2019.

His defense argued that Bitcoin is not property, but is simply information stored on a digital ledger.

Judge Michael O’Connell disagreed, ruling that Bitcoin is ultimately a kind of property, in line with the tax office’s long-running treatment of digital assets.

However, the AFR reports Judge O’Connell argued Bitcoin specifically could be considered a form of money.

That specific finding runs counter to the ATO’s prevailing views on cryptocurrency.

“For tax purposes, crypto assets are not a form of money,” according to its guidelines, which state the proceeds from disposing of cryptocurrencies can count as ordinary income.

Treating Bitcoin as money, similar to Australian currency, would free it from CGT obligations and the need to pay tax when trading, converting, or disposing of Bitcoin.

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Taking to LinkedIn after the verdict, tax lawyer Adrian Cartland, who served on the defense, said the case “created some significant law”.

The defense plans to appeal, arguing that Bitcoin was not property, not even a form of money, at the time of the alleged offense.

Overnight change to ATO guidance unlikely

Speaking to SmartCompany, Dr Lizzie Morton, a senior lecturer at Curtin University and crypto tax expert, said taxpayers should not rethink their obligations based on the recent judgment alone.

“I don’t think it’s going to have immediate implications for taxation,” she said.

“I don’t think the ATO is going to turn around and start refunding.

“They certainly have a fairly sound position that they’ve held quite strongly since their determinations came out in 2014.”

Morton, who was yet to read the full judgment, called crypto tax regulation a “fascinating but challenging” area that takes time to bed in.

For now, Bitcoin holders should defer to the advice of registered tax professionals, she added.

“The ATO’s position and still the ATO’s position until it’s not,” she said.

“So we’ve got to be really careful.”

Tech sector, accountants closely watch the courts

With the case leaning towards another hearing in the Court of Appeal, some fintech industry onlookers say findings could reshape how Bitcoin is treated in Australia.

Byron Goldberg, principal at early-stage venture capital firm Backbone Partners, said Judge O’Connell’s findings — if upheld — could drive an influx of capital and talent to Australia.

Should the local crypto industry band together to support the findings through the courts, “not only will Bitcoin be deemed currency in Australia, it will deem Australia a leader in crypto (where it actually belongs),” said Goldberg.

As local fintech participants consider what might come next, accounting experts are warning taxpayers not to make any rash decisions about their Bitcoin holdings.

The case is “far from over,” wrote Geoff Rooney, a partner in BDO Australia’s financial services audit and assurance team.

“The decision is being appealed and could make its way to the Federal Court — or even the High Court — later this year.

“So, while the headlines are eye-catching, it’s probably wise to hold off on lodging any tax refund claims just yet.”

Even so, the case is one to “watch closely,” he added.

“It raises fundamental questions about how we define money, property, and value in a software-driven world.”

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