Analyzing Cryptocurrency Trading and Gambling Under Australian Tax Law

This assignment delves into the complex relationship between cryptocurrency trading and gambling from a legal and taxation perspective, specifically within the Australian context. It addresses whether the buying and selling of cryptocurrency should be treated similarly to gambling returns when lodging corporate tax returns. The solution highlights that while gambling income is generally tax-free and losses are not allowable, cryptocurrency trading is subject to different tax treatments depending on the nature of the activity. If Bitcoin trading is conducted as a normal business, it is taxed as per Section 43 of the IT Act, 1961. If undertaken for investment purposes, gains or losses are treated as capital gains or losses under Section 102-20 of the IT Act, 1961. Only when cryptocurrency trading is purely speculative and akin to gambling might the gains be tax-free, but losses remain non-deductible. The assignment references relevant sections of Australian tax law and academic literature to support its analysis, concluding that cryptocurrency trading should not be uniformly treated as gambling but rather assessed based on its intent and nature.

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
is given equivalent to income taxation as per section 43 of IT Act,

1961. When the trading in Bitcoin is undertaken for the investment
purpose, then the gain or loss will be taxed as the capital gain or loss
as per Section 102-20 of the IT Act, 1961. When trading in Bitcoin is
undertaken with the motive of gambling, then the gains will be tax free
but for the losses, no tax relief will be given.
In case of the existing trader of Bitcoin, the trading activity will be
assessed based on the profit and loss account to identify the quantum
of taxable profits. But for the individual who is holding Bitcoin or any
other type of crypto-currency may not be certain about the fact that
whether their holding is taxable or in case of losses, whether they are
allowable. If the value of Bitcoin increases on account of speculation,
then such trading of Bitcoin can be considered as an activity similar to
gambling. When the virtual currency is maintained with the aim of
creation of long term wealth, then such holdings are more of
investment nature and therefore the gain or loss on its trading will
amount to capital gain or loss.
Therefore, it would not be correct to treat Bitcoin trading as the
gambling activity. Rather, it can be said that the activity of Bitcoin
trading can be considered as an activity akin to gambling activity.
Therefore, as per the income tax provisions, if the Bitcoin is traded
with the speculation motive than such income will be tax free as it will
then be considered as a part of gambling activity. In other cases, the
returns of gambling must be treated as per the normal income tax

provisions.

Reference Page:
Australian Government. 2018. GST When Conducting Gambling Activities. <
https://www.ato.gov.au/Business/GST/In-detail/Your-industry/GST-when-conducting-gambling-
activities/?page=3#Calculating_your_margin>
Australian Government. 2018. GST When Conducting Gambling Activities.
https://www.ato.gov.au/Business/GST/In-detail/Your-industry/GST-when-conducting-gambling-
activities/?anchor=Definitionsofgambling#Definitionsofgamblinghttps://www.ato.gov.au/
Business/GST/In-detail/Your-industry/GST-when-conducting-gambling-activities/?
anchor=Definitionsofgambling#Definitionsofgambling.
Australia's Future Tax System. 2018. Enhancing social and market outcomes.
http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/papers/
final_report_part_2/chapter_e7-2.htm.
Brito, Jerry, Houman B. Shadab, and Andrea Castillo. 2015. "Bitcoin financial regulation:
Securities, derivatives, prediction markets, and gambling."
Butler.2018. Bitcoin Trading. https://www.butler-co.co.uk/articles/BitcoinTrading.pdf.
Holtgraves, Thomas. "Gambling, gambling activities, and problem gambling." Psychology of
Addictive Behaviors 23, no. 2 (2009): 295.