Hypothetical tax question.

[Propagate]

Last year I listened to a radio article on Bit Coins. It sparked my interest a bit, enough to spend some beer money on some.

I bought a grand total of 4 Bit Coins, (for those that are unfamiliar, it's a crypto-currency, computer based, not widely used as yet and HIGHLY volatile).

I recently read an article about why Bit Coins could potentially be worth $1m each in the not too distant future, (could equally be worth zilch).

It made me wonder about the tax implications if it was to become a widely used currency by the time it was worth $1m.

For example, if my 4 Bit Coins were worth $4m in 20 years time and I exchanged them back to AUD then I'd have an enormous tax bill, but if they were accepted more regular as currency by then and I simply 'spent' them instead of dollars, then are they taxable? I's still only have my original 4 Bit Coins.

This then threw up another scenario. Say estate agents and vendors are accepting Bit Coins by then and I take by 4 Bit Coins and buy 4x $1m houses, is there any tax to pay as I still only had my original 4 coins which are now spent as regular tender...

....say I then sell the houses a few years later for AUD, what tax would be payable then? The difference between their value in dollars at purchase against sale value or would tax be payable on the difference between what they sold for and the original value of the Bit Coins in 2013?

Completely hypothetical scenario, but stranger things have happened.

Cheers.

 

[The Y-man]

http://www.abc.net.au/news/2014-01-07/zynga-adoption-pushes-bitcoin-back-over-2412c000/5187256



The Y-man

 

[Propagate]

http://www.abc.net.au/news/2014-01-07/zynga-adoption-pushes-bitcoin-back-over-2412c000/5187256



The Y-man

...may not be such a hypothetical scenario after all then!

 

[Terry_w]

Last year I listened to a radio article on Bit Coins. It sparked my interest a bit, enough to spend some beer money on some.

I bought a grand total of 4 Bit Coins, (for those that are unfamiliar, it's a crypto-currency, computer based, not widely used as yet and HIGHLY volatile).

I recently read an article about why Bit Coins could potentially be worth $1m each in the not too distant future, (could equally be worth zilch).

It made me wonder about the tax implications if it was to become a widely used currency by the time it was worth $1m.

For example, if my 4 Bit Coins were worth $4m in 20 years time and I exchanged them back to AUD then I'd have an enormous tax bill, but if they were accepted more regular as currency by then and I simply 'spent' them instead of dollars, then are they taxable? I's still only have my original 4 Bit Coins.

This then threw up another scenario. Say estate agents and vendors are accepting Bit Coins by then and I take by 4 Bit Coins and buy 4x $1m houses, is there any tax to pay as I still only had my original 4 coins which are now spent as regular tender...

....say I then sell the houses a few years later for AUD, what tax would be payable then? The difference between their value in dollars at purchase against sale value or would tax be payable on the difference between what they sold for and the original value of the Bit Coins in 2013?

Completely hypothetical scenario, but stranger things have happened.

Cheers.

These bit coins would probably be a CGT asset. Disposal of the asset would be a CGT and tax payable.

It would be included under "Foreign currency"
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s108.5.html

see
s 995-1 definitio
"foreign currency" means a currency other than Australian currency.
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s995.1.html#foreign_currency

 

[jrc77]

If they did increase to $1m in value I hope you bought them using a discretionary trust so you can more efficiently distribute your capital gains

Jason

 

[alexlee]

These bit coins would probably be a CGT asset. Disposal of the asset would be a CGT and tax payable.

It would be included under "Foreign currency"
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s108.5.html

see
s 995-1 definitio
"foreign currency" means a currency other than Australian currency.
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s995.1.html#foreign_currency

However, there is no definition of 'currency'. If the ordinary definition is a government issued / backed currency, then bitcoin would be closer to a CGT asset like gold.

 

[Terry_w]

However, there is no definition of 'currency'. If the ordinary definition is a government issued / backed currency, then bitcoin would be closer to a CGT asset like gold.

Good point.

Dictionary definition:

1a system of money in general use in a particular country:the dollar was a strong currency [mass noun]:travellers cheques in foreign currency

2 [mass noun] the fact or quality of being generally accepted or in use:the term gained wider currency after the turn of the century
the time during which something is in use or operation:no claim had been made during the currency of the policy

from http://www.oxforddictionaries.com/definition/english/currency

 

[Propagate]

So, would spending them rather than converting them back to AUD count as disposal as far as ATO goes?

So in the example above, if I bought property with them I would need to pay the relevant tax based on the AUD values of the property at the time of purchase in relation to the original AUD value of the Bit Coins at their time of purchase?

Whatever, if my few hundred bucks of gamble turns into several million I'll be quite happy to pay whatever the tax may be!

 

[Terry_w]

So, would spending them rather than converting them back to AUD count as disposal as far as ATO goes?

So in the example above, if I bought property with them I would need to pay the relevant tax based on the AUD values of the property at the time of purchase in relation to the original AUD value of the Bit Coins at their time of purchase?

Whatever, if my few hundred bucks of gamble turns into several million I'll be quite happy to pay whatever the tax may be!

Get your own speicific advice, but I would imagine you would pay tax on what they are worth at the time of disposal. Spending = disposal.

 

[Dean2012ad]

Thanks for asking the question Propagate, as I was thinking of 'investing' in
these coins.
http://www.telegraph.co.uk/technolo...ches-early-after-Kanye-West-legal-threat.html

 

[Rob G.]

So, would spending them rather than converting them back to AUD count as disposal as far as ATO goes?

So in the example above, if I bought property with them I would need to pay the relevant tax based on the AUD values of the property at the time of purchase in relation to the original AUD value of the Bit Coins at their time of purchase?

Whatever, if my few hundred bucks of gamble turns into several million I'll be quite happy to pay whatever the tax may be!

The Bit Coin is a CGT asset.

I don't know much about them but "spending" would be a disposal CGT event A1. However, another more specific CGT event may apply in certain circumstances.

The capital proceeds include the value of property given (the asset you "purchase" with it).

Also consider that your intention in acquiring these highly negotiable instruments may put them on the revenue account as ordinary income and they may also be the subject of the TOFA regime.

Cheers,

Rob

 

[Propagate]

The Bit Coin is a CGT asset.

I don't know much about them but "spending" would be a disposal CGT event A1. However, another more specific CGT event may apply in certain circumstances.

The capital proceeds include the value of property given (the asset you "purchase" with it).

Also consider that your intention in acquiring these highly negotiable instruments may put them on the revenue account as ordinary income and they may also be the subject of the TOFA regime.

Cheers,

Rob

....but, what if they became classed as currency by the time I did anything with them, and then spent them as currency by purchasing things? (still only having the original 4 bit coins).

An analogy being, say I converted 100 British pounds to Aussie dollars today and got $185 AUD.

I then leave the $185 in my account for 20 years, during which time the Australian economy hyper deflates.

My $185 today might buy me a pair or runners, in 20 years, by some freak economic deflation the same $185 buys me a Ferrari.

Would that be taxable? It's still only $185.

 

[Rob G.]

....but, what if they became classed as currency by the time I did anything with them

They are not Australian currency.

s.8 Currency Act 1965 specifies the Australian dollar as the unit of Australian currency.