Damian Lloyd, a lawyer and former tax office employee, is challenging the tax on Bitcoin in his native Australia. If the challenge is successful, the tax on profits since 2014 might need to be refunded by the Australian Tax Office (ATO).
What follows is excerpts from:
Aussies Who Paid Tax on Crypto Could Be Entitled To a ‘Massive Refund’
Crypto tax: Bitcoin May Not Be Property
Lloyd pointed out that the tests for defining what is property and what isn’t are complex. He cited the Ainsworth Test, an Australian legal precedent that requires that a right or interest in a thing only amounts to property if it has certain, additional legal characteristics. But, he says, “that test presumes that there are rights in the thing. If there are no rights in the thing, the test arguably doesn’t apply”.
Lloyd adds: “My central argument is that the ATO says that there are rights in holding Bitcoin. But they’re not enforceable. In my research into rights and how these provisions are framed in our tax laws, rights have to be enforceable.
“If they’re not enforceable, then the Commissioner must mean that there are no rights in crypto. And if there’s no rights in crypto, then the Ainsworth Test doesn’t apply and crypto is not property. The end result is that crypto might not be taxable.”
Lloyd has applied for a private ruling to challenge the ATO’s classification of Bitcoin as a CGT asset. If the ATO disagrees with his position, Lloyd may need to take the issue to court for a definitive resolution.
He believes that if the ATO is proven wrong, it could lead to two possible outcomes. Either the government would need to intervene and create enforceable rights for crypto holdings to make them CGT assets. Or, the government would need to provide tax refunds for anyone who has ever paid taxes on crypto.
“That’s why I’ve put in the ruling,” Lloyd says. “The ATO has to take a stance on the arguments that I’ve raised. And, ideally, we need confirmation from the courts.”
“I’m taking the step on behalf of people who can’t, who don’t have the knowledge in terms of the technology and the law itself,” Lloyd says. “I want to challenge the ATO with respect to the issue because it could very well be that they are wrong. It’s not an easy argument to get your head around, but I still feel it’s very defensible.”
If Lloyd wins, and the ATO can’t work out how to make Bitcoin a CGT asset, he says “There could be a massive refund for anyone that’s paid tax on crypto”.