Taxation of Cryptocurrency Trading: Is it Similar to Gambling?

Question 1
The buying and selling of cryptocurrency may be viewed as gambling
Required:
a) With reference to relevant section of the law, how are gambling returns dealt with when lodging
corporate tax returns? 2 marks (Maximum 200 words)
b) From a taxation perspective, cryptocurrency trading should be dealt in the same manner as
gambling returns. Discuss the correctness of this statement with reference to relevant section of
the law. (6 marks) (Maximum 600 words)
Answer:
Question 1
a) (2 marks)
Section Discussion (MAX 200 words total)
IT RULING:
2655
The term gambling has been defined by the Australian Taxation
Office. It includes raffles, lotteries, gambling in casinos, gambling in
hotels or clubs, betting for racing or other events. Tax on gambling
activities is the most important source of revenue generation for the
State Government. At the level of Australian Government, the tax
treatment of return from gambling activities is given equivalent to the
tax treatment on sale of goods and services. Therefore, gambling
activities are charged with Good/s and Service Tax (GST). Currently,
GST is paid on the returns of gambling activities at the rate of 1/11th of
the margin for the particular tax period (Australian’s future tax system,
2018). Margin under Gambling event wagers is calculated as the
difference between the total amount of money received under
gambling sales and the monetary prize that is paid out. If the overall

amount received in the wagers event is higher than the overall amount
paid out as the monetary prices, then the player has to pay GST
thereupon.
Hence as per Australian taxation laws, the income from gambling
activities is therefore charged at under the purview of GST act while
filing the corporate tax returns. However, income under gambling is
tax free and also the losses are also not allowable under income tax
provisions ((Australian Taxation Office, 2018).
Question 1
b) (6 marks)
Is this statement correct?
State: Yes this statement is correct
No this statement is not correct
Section Discussion (MAX 600 words total)
Section 102-20,
of IT Act, 1961
Capital gain
taxation
Section 43 of IT
Act, 1961.
No the statement is not correct.
Justification:
Bitcoin is a digital currency that deploys peer to peer technique for its
operation on the online mode without any central authorisation or the
banks. It is an innovative type of money (Brito, Shadab & Castillo,
2015). It is also termed as crypto currency that has its unique identity
in the market. It cannot be compared to any other type of investment -

activity (Holtgraves, 2009).
Generally, the trading in Bitcoin is legally permissible. Any stock
trading on the stock changes involves some speculation and hence
there always lies a risk. In fact any form of trading can be considered
as a form of gambling because of the fact that it demands making of
predictions in relation to the probability of occurrence of some event.
Not all the trading activities where there is an existence of risk and
uncertainty can be termed as gambling activity. The difference in
trading with the digital assets like Bitcoin Currency is that there exists
a potential inherent value of the crypto-currency (Bitcoin) might get
undervalued or overvalued at a particular time. However the activity
of gambling is different since there does not exist any inherent value
to the poker hand. Rather, the players are betting for the probabilistic
result of a given set of repeatable outcome (Butler-co., 2018).
As per the corporate taxation law, the income or loss on movement of
currency prices on the exchange are taxable. Bitcoin is the virtual
currency and the general rules of taxation shall apply to it. Therefore,
in case of unincorporated business of Bitcoin currency, the profit and
loss under the Bitcoin transactions must be charged to tax as per
general IT rules of IT Act, 1961.
Whenever, there is trading of Bitcoin currency is undertaken as a part
of normal business, then the tax treatment of income or loss on Bitcoin