Individual Assignment: Tax Treatment of Cryptocurrencies (ACC304)

This assignment addresses the tax implications of cryptocurrencies in Australia, focusing on the guidelines provided by the Australian Taxation Office (ATO). It begins with a letter of advice to a client explaining how capital gains tax (CGT) applies to cryptocurrency transactions, including buying, selling, trading, and using cryptocurrencies to purchase goods and services. The letter differentiates between personal use assets and business transactions, clarifying when CGT is levied. The assignment then presents an income statement under accounting standards and tax law, followed by a distribution statement for partners. The provided references include relevant sources such as ATO guidelines and academic articles on cryptocurrency taxation. The assignment covers key aspects of cryptocurrency taxation, including the exchange of cryptocurrencies and the tax implications of holding cryptocurrencies as an investment portfolio. It emphasizes that tax liability arises upon disposal of the cryptocurrency, not from market value fluctuations. This assignment is a comprehensive analysis of cryptocurrency taxation within the Australian context.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Author Note

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TAXATION LAW
Table of Contents
Part A: Written Letter of advice......................................................................................................2
Tax Treatment of Cryptocurrencies.............................................................................................2
Introduction..................................................................................................................................2
Taxation in Australia....................................................................................................................2
Cryptocurrency based transactions..............................................................................................3
Exchange of Cryptocurrencies.....................................................................................................3
Tax implications in case of portfolio...........................................................................................3
Part B...............................................................................................................................................4
Income Statement under Accounting Standards..........................................................................4
Income Statement under Tax Law...............................................................................................5
Distribution Statement for each of the partners...........................................................................5
References....................................................................................................................................6

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TAXATION LAW
Part A: Written Letter of advice
Our ref: 189
Alex Perry 20th January 2020.
23/21, Opera Street,
Sydney,
New South Wales.
Dear Alex,
Tax Treatment of Cryptocurrencies
As a follow up to our previous meeting, this letter is being sent to you to explain the tax
implications of cryptocurrencies in Australia.
Introduction
As per the ATO guidelines, cryptocurrency is used to refer to a digital asset which tends
to use the Blockchain technology to prevent the generation of excessive new units and also to
verify the transactions occurring through the technology. Initially, the worry around the world
was the lack of regulations surrounding cryptocurrencies (Anthony Das, Prasad and Sadique
2018, p.7). This has been addressed of late by the ATO and rules have been formed with regards
to taxes on cryptocurrencies.
Taxation in Australia
In Australia, there has been an acknowledgement of the increasing importance of the
transactions conducted through cryptocurrencies. This term is used to mostly refer to Bitcoin and
other similar technologies with identical characteristics. The taxation on cryptocurrencies is
mostly related to the transactions occurring with cryptocurrencies and the cryptocurrencies used
as a part of the business of an entity.

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Cryptocurrency based transactions
A cryptocurrency based transaction is chargeable under CGT when the currency is sold
or given as a gift, traded or exchanged with another cryptocurrency, converted into the currency
of the nation like Australian Dollars or used in purchasing goods and services during the normal
course of activities (Ato.gov.au. 2020). In case of earning capital gains from these disposals,
capital gains tax is levied on the individual involved in dealing them. If the cryptocurrency is
used as a personal use asset defined under s-108-20 ITAA 1997, no CGT is charged. In case of
disposing the cryptocurrency as a part of the business, the resulting profits would be charged as
ordinary income of the taxpayer and not as capital gains earned by them.
Exchange of Cryptocurrencies
If a taxpayer exchanges one form of cryptocurrency for another cryptocurrency, it is
considered to be similar to the disposal of a CGT asset. In these cases, the cryptocurrency
received by the taxpayer will be converted into Australian Dollars and CGT would be charged.
In case of a problem with valuing the cryptocurrency, the amount of capital proceeds received
from a transaction are calculated on the basis of the market value cryptocurrency disposed by the
taxpayer.
Tax implications in case of portfolio
In case of acquiring cryptocurrencies as an investment, CGT would be levied at the time
of disposal of the cryptocurrency. Despite a change in the market value of the cryptocurrencies,
there is no capital gain or loss occurring on the currency unless it is disposed of by the person
holding the cryptocurrency. However, in these situations, the personal use asset exemption is not
allowed. In case of any capital losses occurring from the asset, they can be used in reducing the
capital gains earned by the taxpayer (Ato.gov.au. 2020).

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Hence, it can be suggested to you that you will be liable to pay taxes on your portfolio of
your cryptocurrencies only when you dispose them. There is no impact of their change in market
values on your tax liability.
Yours Sincerely
********.
Part B
Income Statement under Accounting Standards

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Income Statement under Tax Law
Distribution Statement for each of the partners

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References
Anthony Das, C, Prasad, K and Sadique, M.S, 2018, July, Cryptocurrency a Bit unregulated?,
In International Conference on Business and Banking V (ICBB V).
Ato.gov.au. 2020, Tax treatment of crypto-currencies in Australia - specifically Bitcoin, viewed
on 21 January 2020, https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-
Australia---specifically-bitcoin
Ato.gov.au. 2020, Tax treatment of crypto-currencies in Australia - specifically Bitcoin, viewed
on 21 January 2020<https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-
australia---specifically-bitcoin/?page=2>