Taxation Law Assignment: Cryptocurrencies, Tax and Partnership

This document presents a comprehensive solution to a Taxation Law assignment, specifically addressing the taxation of cryptocurrencies in Australia. Part A provides a detailed written letter of advice to Mr. Alex Smith, explaining the Australian Taxation Office's (ATO) regulations regarding cryptocurrency taxation, including Capital Gains Tax (CGT), Income Tax, Goods and Services Tax, and Fringe Benefits Tax. The letter clarifies how these taxes apply to transactions such as gifts, trades, and conversions to fiat currency, as well as investments in cryptocurrencies. Part B includes an Income Statement using accounting standards and a Distribution Statement of Partners, demonstrating the financial implications of the tax laws discussed. The assignment utilizes the ATO's publications and relevant resources to offer a clear understanding of the tax treatment of cryptocurrencies. The solution covers various aspects of cryptocurrency taxation, offering practical insights into the subject.

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.....................................................................................................3
Cryptocurrencies and their taxation in Australia.........................................................................3
Overview......................................................................................................................................3
Australian Tax Regulations..........................................................................................................3
Meaning of Cryptocurrencies.......................................................................................................4
Transactions Using Cryptocurrencies..........................................................................................4
Cryptocurrency Exchange............................................................................................................4
Investment....................................................................................................................................4
Summary......................................................................................................................................5
Part B...............................................................................................................................................5
Income Statement Using Accounting Standards..........................................................................5
Net Income as on 30 June 2018 Using Income Tax Law............................................................6
Distribution Statement of Partners...............................................................................................6
References....................................................................................................................................7

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Part A: Written Letter of Advice
Mr Alex Smith Ref No: 3169
20 Lexington, 23rd January 2020.
Bella Vista,
NSW 2175.
Dear Alex,
Cryptocurrencies and their taxation in Australia
On the basis of our prior meeting, we are sending this letter to you to provide you with an
enhanced understanding of the basis taxes levied on taxpayers dealing with cryptocurrencies by
the Australian Taxation Office (ATO).
Overview
Prior to the introduction of the latest laws, the taxation of cryptocurrencies was an
uncertain area in Australia and other parts of the world. This was due to their unconventional
nature of operation. As cryptocurrencies are not monitored by any Central Bank or other
regulating authorities, their taxation continued to remain complex. However, in recent years,
more robust rules have been laid down by the ATO with regards to the taxes levied on them
(Powell and Hope 2018).
Australian Tax Regulations
In 2014, many of the public rulings published by the ATO were finalised as methods of
taxing the cryptocurrencies. These publications suggest that dealing in cryptocurrencies is similar
to dealing in a barter system (Loc.gov. 2020). This means that instead of an exchange of
currency, there is an exchange of valuables between taxpayers. Hence, dealing in
cryptocurrencies is covered under various taxes like Capital Gains Tax, Income Tax, Goods and
Services Tax and Fringe Benefits Tax.

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Meaning of Cryptocurrencies
The term cryptocurrencies is used to define Bitcoin or other forms of cryptocurrencies
with a similar nature. Transactions conducted through cryptocurrencies and using them as a part
of the business are both charged under the taxation rules of ATO.
Transactions Using Cryptocurrencies
If a particular cryptocurrency is disposed of as a gift, traded with another cryptocurrency
or converted into a fiat currency, CGT is applicable on the same (Ato.gov.au. 2020). It is also
levied on cryptocurrencies used as a part of the business. If the business of the individual
involves dealing in cryptocurrencies, then tax is to be levied as business income. If an individual
holds a variety of cryptocurrencies, then every individual currency will be considered as a CGT
asset.
Cryptocurrency Exchange
There are cases where one cryptocurrency is exchanged for another. Here, the
cryptocurrency received by the individual will be converted into Australian Dollars and CGT
will be charged on the same. If there is no information on the same, then CGT will be levied on
the market value of the cryptocurrency disposed of (Ato.gov.au. 2020).
Investment
In case of owning cryptocurrencies as an investment, CGT will be charged on the amount
earned from the sale of the currency. If they are held for more than 12 months, then CGT
discount of 50% will be available on the capital gains. The capital losses can also be utilised in
reducing the overall capital gains.

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Summary
If you hold a variety of cryptocurrencies in your portfolio, CGT will be levied on every
individual cryptocurrency. The tax will only be charged at the time of their sale and there is no
impact of the increase in the market value on the tax.
Yours Truly
********
Part B
Income Statement Using Accounting Standards

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Net Income as on 30 June 2018 Using Income Tax Law
Distribution Statement of Partners

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References
Ato.gov.au. (2020). Tax treatment of crypto-currencies in Australia - specifically bitcoin.
[online] Available at: https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-
in-Australia---specifically-bitcoin/?
anchor=Transactingwithcryptocurrency#Cryptocurrencyasaninvestment [Accessed 23 Jan.
2020].
Ato.gov.au. (2020). Tax treatment of crypto-currencies in Australia - specifically bitcoin.
[online] Available at: https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-
australia---specifically-bitcoin/?page=2 [Accessed 23 Jan. 2020].
Loc.gov. (2020). Regulation of Cryptocurrency. [online] Available at:
https://www.loc.gov/law/help/cryptocurrency/australia.php [Accessed 23 Jan. 2020].
Powell, K. and Hope, M., 2018. Shifting digital currency definitions: current considerations in
Australian and US tax law. eJTR, 16, p.594.