New court ruling finds Bitcoin is akin to Australian currency, potentially exempt from capital gains tax

Legal and taxation experts are closely considering a new court ruling that found Bitcoin is akin to Australian currency, and potentially exempt from capital gains tax (CGT).

A new ruling by the Australian judge, in which he found Bitcoin to be a form of currency, might have interesting implications for the capital gains tax, according to Australian Financial Review.

If that view is upheld in the courts, it could revolutionise the tax treatment of Bitcoin in Australia and open the door to many millions of dollars in refunded CGT obligations. But that legal process is lengthy and uncertain, meaning today’s Bitcoin holders should not neglect the Australian Taxation Office’s current guidance on crypto assets.

The finding, which was part of a recent criminal case, has been covered extensively by the AFR. The case involved a former Australian Federal Police officer, who was accused of stealing 81.6 Bitcoins in 2019.

The defense argued that Bitcoin is not property, but is simply information stored on a digital ledger, and that at the time of the alleged offense, Bitcoin had no market value. The prosecution claimed the Bitcoins were worth $4.4 million at the time of theft.

Judge Michael O’Connell disagreed with both assertions, ruling that Bitcoin is ultimately a kind of property, in line with the tax office’s long-running treatment of digital assets. The judge also said that the cryptocurrency had a market value, albeit one that fluctuates wildly.

However, the judge also argued Bitcoin specifically could be considered a form of money. That specific finding runs counter to the ATO’s prevailing views on cryptocurrency.

“For tax purposes, crypto assets are not a form of money,” according to its guidelines, which state the proceeds from disposing of cryptocurrencies can count as ordinary income.

Treating Bitcoin as money, similar to Australian currency, would free it from CGT obligations and the need to pay tax when trading, converting, or disposing of Bitcoin.

The case is now set to proceed to the Court of Appeal, where the defense plans to further argue that Bitcoin was not property, nor even a form of money, at the time of the alleged offense.

If the appeal is successful, it could have far-reaching consequences for the taxation of cryptocurrency in Australia.

The Australian Taxation Office has been clear in its stance on cryptoassets for some time now. According to the ATO, cryptoassets are not a form of money, but rather a category of asset like shares, units in a trust or property.

The proceeds from disposing of cryptocurrencies can count as ordinary income, while the ATO also maintains that cryptoassets are subject to capital gains tax (CGT).

The case will be closely watched by the tech sector and accounting experts alike.

The implications of the ruling could be huge for Australia's standing in the global crypto scene, according to Byron Goldberg, principal at early-stage venture capital firm Backbone Partners.

Should the local crypto industry band together to support the findings through the courts, "not only will Bitcoin be deemed currency in Australia, it will deem Australia a leader in crypto (where it actually belongs)," said Goldberg.

While the case is certainly one to keep an eye on, as local fintech participants consider what might come next, accounting experts are warning taxpayers not to make any rash decisions about their Bitcoin holdings.

The case is "far from over," wrote Geoff Rooney, a partner in BDO Australia's financial services audit and assurance team.

"The decision is being appealed and could make its way to the Federal Court - or even the High Court - later this year. So, while the headlines are eye-catching, it's probably wise to hold off on lodging any tax refund claims just yet."

Even so, the case is one to "watch closely."

"It raises fundamental questions about how we define money, property, and value in a software-driven world."