Mischaracterised “Personal-Use” Crypto Assets

Abstract

In an environment lacking specific legislative guidance for crypto assets and with limited court cases testing the legal framework surrounding them, taxpayers often turn to the Australian Taxation Office (ATO) website for guidance. However, concerns arise regarding the ATO's approach to characterising personal-use assets on its website, as it relies on unprecedented legal principles. This article provides a principles-based interpretation of the tax law for crypto transactions involving personal-use assets, including collectables, which are a subset of personal-use assets. The article explores the conceptual underpinnings of tax policy and rationalises the complex capital gains tax (CGT) provisions designed to exclude consumption once it has been taxed based on income. It also examines the special tax provisions applicable to collectables and the measures in place to prevent the exploitation of tax exemption thresholds. After considering the tax policy and design aspects of Australian tax law pertaining to personal-use assets, this article suggests limiting the characterisation of crypto assets as personal-use assets. Specifically, the characterisation should be based on the nature and use of the assets traded in crypto transactions, with the mechanism to remove double-counted values. Cryptocurrencies and crypto assets that are CGT assets used for trading non-wasting intangible assets should be presumed as non-personal-use assets, except in exceptional circumstances. These recommendations aim to align the tax treatment of crypto assets with tax policy and principles, thereby minimising unaccounted costs to revenue. However, further analysis is necessary to address interpretative challenges associated with characterising various emerging types of crypto assets.