In March 2018, the Australian Taxation Office (ATO) asked the community for feedback on "Substantiating cryptocurrency taxation events". This submission was prepared by a group of like-minded inviduals and submitted to the ATO on 20th April 2018. The submission is also available as an online petition where fellow Australians can show their support for the ideas presented here. Please go to http://bit.ly/FairCryptoTaxAus_Signatures and consider showing your support on Change.org.

1. Joint Submission
to the
Australian Taxation Office
regarding consultation on
Substantiating cryptocurrency taxation events
20th
April, 2018

2. i
This submission to the ATO has been prepared via a collaborative effort between several individuals,
residing in several states across Australia.
We do not represent any organisation or group.
We do not claim to represent anyone’s views or beliefs other than ourselves.
This submission to the ATO has been published on Slideshare and Change.org
Individual Australians are free to review the content, and then demonstrate their support of this
submission if they wish to do so.
Please click here to see this submission on change.org and review the signatures received.
This work is licensed under a Creative Commons Attibution-ShareAlike 4.0 International License.
You can click here to find out what this license allows you to do.
Indunil Weerasinghe, MSc.Tech., AFIML
Cryptocurrency Enthusiast
conversations@block2050.io
Michaela Rankin, B.Com., CA, FTI
Chartered Accountant
michaela@michaelarankin.com
Timothy Maybury, B.Eng
Cryptocurrency Enthusiast
N. W.
Investor

3. ii
It is of vital importance for the prosperity of
future generations of Australians that we, as a society,
choose to regulate this space in a way that
fosters innovation and financial inclusion,
rather than being distracted by the headline of the day.

4. iii
Executive Summary
We welcome the Australian Taxation Office’s (ATO) call for community consultation. We believe it is
our civic duty as well as in the interest of the general public that the cryptocurrency community
engages actively in this process.
In this document we wish to convey that If tax obligations in the cryptocurrency space are simpler,
fairer, and easier to understand, then:
 The likelihood of individuals to correctly comply with their tax obligations is higher.
 The temptation for individuals evade paying taxes is lower.
 The burden on the ATO, and in-turn the tax payer, will be minimised as less time and fewer
resources will need to be committed to auditing tax returns and chasing evaders.
 The fear of use of cryptocurrency be reduced and adoption of the technology will increase.
 It will provide regulatory certainty that will incentivise investment and growth in this
developing industry.
The document will address questions initiated by the ATO and discuss issues such as:
 Record Keeping, which in accordance with current interpretation of the regulations will
place a huge burden on individuals, often for very little tax liability.
 Exchanging cryptocurrency for other cryptocurrencies and for fiat currency (i.e. Australian
Dollars) and difference between the current (AUD driven) taxation system and exchanges
that take place within the cryptocurrency space.
In conclusion we are calling call on the ATO to seriously consider this submission when developing
further public advice and guidance, and influence future regulations accordingly with:
 The sensible application of tax regulations to the cryptocurrency space to help create a fair
system in which law-abiding Australians are supported, whilst undermining the business
case for those attempting to cheat the system;
 Reducing the cost of complying with, and administrating tax obligations;
 Simplifying record-keeping obligations and creating a closer coupling between the Australian
tax system and the cryptocurrency space;
 Recognising the exchange of one cryptocurrency for another cryptocurrency as a “like kind”
exchange and only the exchange of Australian Dollars for a cryptocurrency and vice versa
would materially affect an individual’s current tax liability;
 Acceptance of cryptocurrency payments towards settlement of tax obligations, and
disregarding liquidation of assets made specifically with the intent of settling tax obligations
as a taxable event;

5. iv
Table of Contents
Executive Summary.................................................................................................................................iii
Table of Contents.................................................................................................................................... iv
Preamble..............................................................................................................................................- 1 -
Part 1 - CGT record-keeping for cryptocurrency................................................................................. - 2 -
Specific factors to be taken into account.................................................................................... - 2 -
Practical issues.............................................................................................................................- 4 -
Part 2 - Exchanging one cryptocurrency for another cryptocurrency.................................................- 6 -
Specific factors to be taken into account.................................................................................... - 6 -
Practical issues.............................................................................................................................- 8 -
Conclusion..........................................................................................................................................- 10 -
Additional Information...................................................................................................................... - 12 -
Schedule 1 - Example of difference in trading objectives......................................................... - 12 -
Schedule 2 - Example of lack of liquidity resolved by recognition of like kind exchanges........- 13 -
Schedule 3 - Web print out of ATO’s consultation....................................................................- 14 -

6. - 1 -
Preamble
This submission to the Australian Taxation Office (ATO) has been prepared and submitted in
response to the ATO’s request for community feedback titled: “Consultation: Substantiating
cryptocurrency taxation events”, published on 16th March 2018. See Schedule 3.
This submission is based on several fundamentals which we believe should be the cornerstone of
any discussion on this topic:
1. We welcome the ATO’s call for feedback and believe it is our civic duty as Australians to
engage constructively in this process. The community can leverage its knowledge of this
unique space to help the ATO deliver legislation that is unequivocally in the greater, public
interest.
2. The cost to the ATO in regulating this space, for example, in carrying out audits, should
not outweigh the potential benefits or be too onerous on taxpayers.
3. Legislative compliance should not be so costly or complicated that it deters participation,
thereby handing an unfair advantage to those with greater access to capital.
4. The need to meet tax obligations should not cause an individual or organisation to
liquidate an asset they would have otherwise held on to.
5. Individuals and organisations are more likely to adhere to tax obligations that are
simpler, fairer, and easier to understand. This will enable accurate calculation of tax
liabilities and incentivise on-time payments to the ATO. Simultaneously, the minority of
players contemplating cheating the system will be undermined. This will minimise the
burden on the ATO to audit individual and chase evaders.
6. Regulatory certainty will reduce implementation risk. By providing clear,
industry-friendly legislation, Australia could position itself to become a world leader in this
space and provide prosperity for future generations.

7. - 2 -
Part 1 - CGT record-keeping for cryptocurrency
The ATO poses two questions in regard to record-keeping, namely:
1. Are there any practical issues that arise in relation to the CGT
record-keeping rules, so far as cryptocurrency transactions are concerned?
2. Are there any specific factors that you think we should take into account
when developing further public advice and guidance about CGT
record-keeping for cryptocurrency?
The answers to these questions are related. The factors to be taken into consideration in (2) are
indeed what gives rise to the practical issues asked about in (1). This submission will therefore
answer the two questions in reverse order, addressing the factors first and then going on to explain
the practical issues.
Specific factors to be taken into account
(a) Unscrupulous players
The cryptocurrency industry is a nascent one which is heavily reliant on technology. It is a
dynamic space which deserves a fair chance to mature to its full potential. It is a known fact
that there are unscrupulous players. However, as far as public advice and guidance is
concerned, we must resist the temptation to disincentivise such players through taxation, as
this would penalise the vast majority of legitimate players.
(b) Number of varied sources of historical transaction data
There are a lot of service providers already operating in this space. For example, to acquire
cryptocurrency, you can use one of several exchanges, purchase directly from peers,
purchase at an ATM, or participate in mining and/or staking. In addition, the purchase can be
made in Australian Dollars, Bitcoin, Ethereum, or any number of other cryptocurrencies. Each
service provider will differ in regard to format and level of detail of historical transaction data
available to the user.

8. - 3 -
(c) Lack of substantiation documents
One of the fundamental properties of public blockchains is the immutability of data. It is
virtually impossible to overwrite or delete a transaction that has been written into such a
blockchain. Due to this, there is no paradigm within the industry to provide substantiation
documentation, in other words, proof of purchase, for example a tax invoice. The compliance
issues surrounding lack of available tax invoices in the cryptocurrency space needs to be
considered and different regulations applied.
(d) Second layer transactions
However, further to (c) above, it has to be noted that, in future, not every transaction will be
written to a blockchain. For example, the Lightning Network protocol now allows for multiple
Bitcoin transactions to take place on a second layer, which are then aggregated and written
to the Bitcoin blockchain as a single transaction. Activities that take place on centralised
exchanges will also be the same. However, there are no official proof-of-purchase documents
provided for such second layer transactions. In most cases, for example with centralised
exchanges, the only historical transaction data will be in the form of a downloadable CSV file.
It is unclear whether such a file, which can be easily edited, would be accepted by the ATO as
a substantiation document.
(e) AUD not a reserve currency in the cryptocurrency space
The cryptocurrency space currently operates with Bitcoin, Ethereum, and the US Dollar
playing the role of reserve currencies. Popular exchanges allow for trading of coins to take
place against one of these three. Although there are a few Australian exchanges where
trading can be done against the Australian Dollar, it is neither feasible nor fair to expect
Australians to use such exchanges exclusively as they do not have the same liquidity or
volume as the larger, global exchanges. Therefore, estimating the fair value of a transaction
in AUD terms becomes a complex, time-consuming, and error-prone activity. For example, if
a buyer purchases Litecoin using Bitcoin, s/he would have to estimate the AUD value at the
exact time of the transaction. However, there is no historic database for the value of Bitcoin
and Litecoin in AUD. In fact, there will even be many cryptocurrencies that are simply not
listed on any Australian exchange. S/he would have to resort to looking up the USD values
and then use the USD-AUD exchange rate for that day. Given the natural fluctuations in
prices, differences in values of currencies across exchanges, and the time-consuming,
complex nature of such calculations, it is virtually impossible to arrive at a definitive
Australian Dollar value for any given transaction. The only exception to this is where the
transaction has taken place in direct exchange of Australian Dollars for cryptocurrency or vice
versa, but such cases will be a small minority.

9. - 4 -
(f) High volume of transactions
There may be a few users who engage in only a handful of transactions. However, our
experience is that even the average trader/investor who is in this space part-time and as a
hobby will quickly accumulate a high volume of transactions. For example, many
cryptocurrencies are available for purchase only in Bitcoin or Ethereum. Thus, a single
purchase of a given cryptocurrency would require at least two transactions. In this way, in
order to engage in the space just to invest in a handful of coins would require multitude of
transactions and this will grow exponentially as a user steps up into investing in Initial Coin
Offerings and/or trading, whether as a hobby or as a business.
(g) Extreme divisibility of cryptocurrencies
A single Bitcoin can be divided into 10 million sub-units, known as “Satoshis”. This degree of
divisibility is typical of almost all cryptocurrencies. The result of this is that a buyer who
purchases even just 0.1 BTC can use that for dozens of subsequent transactions. Any one of
those transactions can then be followed by other transactions which, in some cases, may
result in asset conversions back into BTC. Combined with the dynamic nature of the industry,
this extreme divisibility of cryptocurrencies adds a high degree of complexity to the
record-keeping requirements. E.g. if a buyer purchases an ICO token using ETH, estimating
the original Dollar value spent on that ETH will require either Dollar-cost averaging or use of
LIFO or FIFO principles. Whichever practice is applied, given the divisibility of the
cryptocurrency keeping track of the Dollar-cost average or prices/quantities of coins in and
out will be an onerous task.
(h) Market volatility which can quickly alter buyer’s intent at purchase
A cryptocurrency transaction could incur a tax liability in one of several ways. As CGT would
only apply in the instance that the buyer is “investing” rather than “trading”, the buyer’s
intent becomes a critical factor in determining tax liability. This is entirely appropriate in
other transactions where one can surmise the buyer’s intent based on the very asset being
purchased. This is not the case in cryptocurrency, and due to its dynamic nature, it may be
entirely appropriate to change one’s intent depending on how the market is behaving.
Practical issues
The factors described above aggregate to create a very complex space. Keeping accurate CGT
records in accordance with current interpretation of the regulations will place a huge burden on
individuals, often for very little tax liability. Those with disposable income may be able to bear this
burden by hiring professional services in the form of accountants and bookkeepers. However, for the

10. - 5 -
average retail investor, this may negate any profits they earn from being in the space. It is therefore
our fear that current CGT record-keeping requirements will deter participation or encourage
avoidance of reporting. This is an unintended consequence of the current system. Legislation should
work to encourage financial inclusion and afford an equal opportunity of participation to all
Australians.
Specific practical issues to be highlighted are:
a) Consolidating transaction history from dozens of sources in different formats and
layouts will be technologically challenging, even to the advanced user of tools such as
Microsoft Excel.
b) Lack of clarity as to what constitutes an “acceptable substantiation document” in
absence of documents such as proof of purchase and tax invoices.
c) Lack of a definitive AUD price for each cryptocurrency coin, even amongst popular
cryptocurrencies such as Bitcoin and Ethereum
d) Lack of easily accessible historic prices for each cryptocurrency
e) High volume of transactions even for the average user, rendering it impractical to
track AUD prices manually
f) Given (a), (c), (d) and (e), calculating and recording the AUD value for any one
transaction will be time-consuming, error-prone, and cost-prohibitive.
g) Substantiating intent at purchase and flexibility to adapt to market conditions
h) Consolidating records to take into account the multiple roles that can be held by a
single person (e.g. “hodling”, trading, and personal use)

11. - 6 -
Part 2 - Exchanging one cryptocurrency for
another cryptocurrency
The ATO poses two questions in regard to the exchange of one cryptocurrency for another
cryptocurrency, namely:
1. Are there any practical issues in relation to complying with the taxation
obligations that arise for each cryptocurrency to cryptocurrency transaction?
2. Are there any specific factors that you think we should take into account
when developing further public advice and guidance about cryptocurrency to
cryptocurrency transactions?
The answers to these two questions are related. The factors to be taken into consideration in (2) are
indeed what gives rise to the practical issues asked about in (1). This submission will therefore
answer the two questions in reverse order, addressing the factors first and then going on to explain
the practical issues.
Specific factors to be taken into account
(a) Practical issues related to Record-keeping
Accurate and reliable record-keeping is precursor to being able to calculate one’s tax
obligations. Thus, the factors and practical issues noted in the previous section (i.e. with
regards to record-keeping) have a significant bearing on an individual’s ability to accurately
comply with his/her tax obligations. Key issues are those in relation to real-time pricing of
cryptocurrencies in AUD; easily accessible historical prices of all cryptocurrencies in AUD, or
at the very least USD; and the impact of buyer’s intent and how that changes in response to
market volatility.
(b) Multiple transactions required to enact a single purchase
Every transaction that exchanges one cryptocurrency for another cryptocurrency is currently
considered a taxable event. However, the vast majority of cryptocurrencies cannot be
purchased using Australian Dollars. In most cases, a buyer has to purchase either Bitcoin or

12. - 7 -
Ethereum and exchange that for the cryptocurrency they actually wish to acquire. The two
transactions should actually be considered as one event in order to reflect the buyer’s intent,
i.e. to make a single purchase of a particular cryptocurrency.
(c) Fundamental decoupling between cryptocurrency and fiat
The cryptocurrency industry is one that can operate in total isolation of fiat currencies such
as the Australian Dollar. It is true that many individuals choose to enter the space via
exchange of fiat for cryptocurrency. However, it is entirely possible to acquire
cryptocurrencies solely via mining, or via barter for goods and services. As such, there is a
fundamental decoupling between an individual’s activity in the cryptocurrency space and
their activity in the AUD driven financial system. This plays out in several ways:
1. Differences in trading objectives: Most new entrants into the space tend to track their
portfolio value in terms of AUD or USD. However, the majority, particularly those in
the space for fundamental reasons, prefer to track their portfolio value in terms of
Bitcoin. Thus, many traders and investors are actually taught to disregard AUD and
USD profitability and focus on Bitcoin profitability when evaluating trades. Given the
predominance of this philosophical approach, most exchanges list prices for
cryptocurrencies against either Bitcoin or Ethereum. Profitability within the
cryptocurrency space will not necessarily translate into profitability in Australian
Dollars. A “good” trader could be very successful in relation to Bitcoin, but pay only a
minimal amount of AUD in tax. Similarly, an “average” trader with limited success in
relation to (his/her objective of) Bitcoin could incur a significant tax liability. This is
counter-intuitive to the very notion of income and capital-gains tax. See Schedule 1.
2. Lack of AUD liquidity to meet tax obligations: Profitability within the cryptocurrency
space does not, in of itself, generate profits in AUD. This hinders the ability of an
individual to comply with their tax obligations, as they may not have the adequate
funds, in AUD, to pay their taxes. See Schedule 2. Essentially, it would force the
individual to either request a payment plan, or liquidate some of their cryptocurrency
assets at a time and price that is not in line with their original intent at time of
purchase. To further complicate the issue, this liquidation in itself would be
considered a taxable event, resulting in an individual being forced to incur an
additional tax liability in order to meet their current tax liability. A few progressive and
far-thinking governments are overcoming this issue by accepting payment of taxes in
Bitcoin. Notable examples include the state of Arizona in the US, and the state of
Georgia which is currently debating a similar bill in their senate.
3. Like-kind exchange of assets: The basic premise for “like kind” exchange under IRC
Code Section 1031 in the United States is the allowance for taxpayers to defer their
tax liability on any gain made on the sale of certain assets if the proceeds of sale are

13. - 8 -
reinvested in a similar asset within a specific time period (180 days). The tax liability
on the gain is deferred, not avoided (it is deferred until you no longer reinvest any
disposal gains to similar assets and convert the ultimate sale proceeds to fiat currency).
This regulation currently applies to cryptocurrency swaps in the United States. This
regulation needs to be considered in regard to Australian capital gains tax laws as the
onerous task of calculating and reporting individual cryptocurrency purchases and
subsequent disposals to other similar cryptocurrencies is a heavy burden for
accountants and taxpayers, yet often results in very little tax liability.
(d) Cost of professional services likely to be prohibitive
The cost of hiring tax professionals to assist with calculating cryptocurrency-related tax
obligations is likely to be prohibitive for several reasons. Issues such as the number of
exchange transactions; number of different cryptocurrencies; and lack of definitive, real-time
prices in AUD will mean that the exercise is complicated and time-consuming. In addition to
this, given the overall rate of adoption is still low, most tax professionals will not be familiar
with the cryptocurrency space and may be unable to offer the same standards of advice to
their clients, when compared to other areas of taxation. The cost of professional services to
overcome all these practical issues will disincentivise participation. By providing an
unintended, systemic advantage to those who can afford such services, the regulations in
their current form work against Australian values of a financially inclusive and
equal-opportunity society. The ATO should consider simplifying regulations (e.g. recognition
of “like kind” exchanges) and consider using relevant technologies to streamline data
reporting.
Practical issues
The factors described above demonstrate that there is a fundamental discord between the current
(AUD driven) taxation system and exchanges that take place within the cryptocurrency space. This is
largely a function of acceptance and regulation. Coupling the current system closely with the nascent
cryptocurrency space can be done by introducing mechanisms such as, but not limited to,
recognition of like kind exchanges and payment of taxes in select cryptocurrencies. Overcoming the
practical issues with regards to complying with tax obligations will ultimate mean, the average
Australian is given equal opportunity to participate in this space.
Specific practical issues to be highlighted are:
a) The practical issues related to record-keeping will adversely impact the ability of an
individual to accurately and reliably calculate their tax obligations.

14. - 9 -
b) Some purchases (as defined by the intent of the buyer) may require a minimum of two
cryptocurrency to cryptocurrency exchanges, resulting in two (or more) taxable events
for what was intended to be a single transaction.
c) Tax liabilities in terms of Australian Dollars will not be in line with a trader’s or
investor’s level of success in terms of Bitcoin, Ethereum, or other cryptocurrency
which the trader or investor was looking to maximise. The taxation system therefore,
in the cryptocurrency space, does not adhere to the fundamental notion that
successful traders and investors should incur a higher tax liability and vice versa.
d) Lack of liquidity in AUD terms will force many individuals to request for payment plans
from the ATO. This will serve to increase household debt and associated stress to the
individual, whilst delaying payments to the government and increasing the cost of
administration for the ATO.
e) In order to meet tax obligations, individuals will be forced to liquidate some of their
cryptocurrency assets at a time and for a price that was not the original intention. This
is fundamentally unfair. It forces the individual to incur a further tax liability in order
to settle past ones. It also denies the individual the freedom to act upon his/her
original intent when purchasing the cryptocurrency.
f) Lack of recognition of “like kind” exchanges will disincentivise exchanges of one
cryptocurrency for another cryptocurrency. This will stunt growth and investment
within the space, which is an undesired outcome.
g) The complicated dynamics between the Australian Dollar and cryptocurrencies will
render the cost of professional services prohibitive to the average individual. By
favouring those who can afford to bear these costs, the system is working against the
fundamental Australian values of financial inclusion and equal opportunity.

15. - 10 -
Conclusion
The nascent cryptocurrency industry has, paradoxically, been plagued with its own success. Meteoric
rises in the value of cryptocurrencies such as Bitcoin and Ethereum have dominated news headlines.
This has attracted many players into the space intent on getting rick quick. However, as the industry
begins to mature, most players realise that there is a long term value to cryptocurrencies as a whole.
This new asset class can play a pivotal role in diversifying investment risk; the cryptocurrency space
is opening up new ways of generating wealth through active and passive sources; and introducing
incredible new technologies, industries and businesses that were not possible in the past. However,
the space has also attracted a few unscrupulous players intent on taking advantage of the good faith
of their fellow human beings.
All of this, whilst relevant, serves to detract from the ability for cryptocurrencies in particular and
blockchain in general to affect society for the better. It is of vital importance for the prosperity of
future generations of Australians that we, as a society, choose to regulate this space in a way that
fosters innovation and financial inclusion, rather than being distracted by the headline of the day.
It is with this in mind that we are heartened by the ATO’s call to gather feedback from the
community. This signals a progressive and open-minded position on cryptocurrency, which bodes
well for Australia. Given that we are still very early in the development of this industry, Australia has
the opportunity to become a world leader simply by creating regulatory certainty that assures
potential investors of consistent, fair, and pragmatic application of tax regulations. The benefit of
this to future generations of Australians in the form of GDP growth and creation of jobs cannot be
understated.
Taking into account all the factors and practical issues discussed within this submission, we would
like to draw specific attention to the following:
1. The application of tax regulations to the cryptocurrency space should be pragmatic.
This will help create a fair system in which law-abiding Australians are enabled to act
according to the law, whilst undermining the business case for those attempting to
cheat the system.
2. The cost of calculating, complying with, and administrating tax obligations should not
place a prohibitive burden on the individual or the ATO.
3. Current tax regulations do not lend themselves well to some aspects of the
cryptocurrency space. Broadly speaking, there is a need to: (a) simplify record-keeping
obligations, and (b) create a closer coupling between the Australian tax system and
the cryptocurrency space.

16. - 11 -
4. Australia should recognise the exchange of one cryptocurrency for another
cryptocurrency as a “like kind” exchange. This would, in effect, make the exchange of
Australian Dollars for a cryptocurrency and vice versa the only exchanges that would
materially affect an individual’s current tax liability. Profits and losses made during the
intermediate transactions would all be accounted for in a manner that is easy to
calculate and provides AUD liquidity to comply with tax obligations.
5. Australia should consider the acceptance of cryptocurrency payments towards
settlement of tax obligations. In addition to this, the liquidation of assets made
specifically with the intent of settling tax obligations should not be considered a
taxable event.
Last but not least, we would like to, once again, thank the Australian Taxation Office for this
opportunity to provide our opinions in regards to this submission.
- END -

17. - 12 -
Additional Information
Schedule 1 - Example of difference in trading objectives
Charlotte earns $60,000 in her regular job. When she is not at work, she is an active trader in the
cryptocurrency space. She has faith in the cryptocurrency market and, in particular, in Bitcoin. Her
mentors and support groups have all advised her to trade so as to maximise her Bitcoin portfolio and
disregard the AUD and/or USD value of her trades.
Based on a combination of technical analysis and rumours that she has heard online, Charlotte is
convinced that DASH will do well in the short term. On 18 September 2017, she purchases 1 BTC
valued at $5,500 and almost immediately exchanges it for 11.76 DASH at the rate of 0.085 BTC. On
22 September, she exchanges her DASH back into BTC at the rate of 0.095 BTC. She now holds 1.11
BTC. At this time, Bitcoin has dropped in value to $4,850, so her AUD portfolio is valued at
$5,383.50.
This particular trade has seen Charlotte’s AUD portfolio decrease by 2.1% (from $5,500 to$5,383.50)
and served to decrease her AUD tax liability. She is all the more ecstatic since her trading objective is
to maximise her BTC holdings. With this trade, she has met that objective by +11% (from 1 BTC to
1.11 BTC) in a matter of days.
(Please note, the above trading scenario is based on actual historic prices for BTC and DASH.)

18. - 13 -
Schedule 2 - Example of lack of liquidity resolved by recognition of
like kind exchanges
Ethan earns $40,000 in his regular job. In November 2017 he bought 1 Bitcoin (BTC) for $15,000 with
his life savings.
In late December it was worth $25,000 and Ethan thought it would be a good idea to convert it to
Ethereum (ETH) which he believes will perform better than BTC in the long term. At the time ETH
was $1,250 so John exchanged his 1 BTC for 20 ETH.
According to the current ATO guidelines, John disposed of one asset for another and made a capital
gain of $25,000 - $15,000 = $10,000. He is therefore liable for CGT on this amount. His tax bracket of
32.5% brings this to $3,250 owing to the ATO.
Ethan decides that he will “HODL” (or “Hold On for Dear Life”) this asset as he believes in the long
term prospects of ETH. On June 30 2018, at the end of the tax year, the price of ETH has dropped to
$700. His 20 ETH are now worth $14,000, a loss of $9,000 on the “purchase price” and $1,000 on his
original investment into the cryptocurrency space of $15,000.
Ethan has faith in the cryptocurrency market and wants to hold onto his ETH. However, according to
the current regulations, he needs to pay CGT on the first transaction. John has no AUD available to
pay this tax. He's forced to sell 4.65 ETH at a significant loss on 30 June 2018 for the price of $700 to
raise $700 * 4.65 = $3,255 to generate the necessary cash flow..
However, since the 4.65 ETH initially cost him $1,250 x 4.65 = $5,812.50, he has inadvertently
reduced his profits for the year from $10,000 to $10,000 - ($5,812.50 - $3,255) = $7,442.50. This
reduces his tax liability from $3,250 to 32.5% x $7,442.50 = $2,418.81 leaving him with extra AUD in
hand that he never intended, and fewer ETH than he intended. Ethan is now thoroughly confused
and is forced to hire a book-keeper to make sense of this and make sure that his calculations are
correct.
Ethan’s lack of AUD liquidity and tax obligations have combined to force his hand and made him act
contrary to his intentions at the purchase of ETH. If Australia were to recognise his exchange of BTC
to ETH as a “like kind” exchange, Ethan would have a tax liability of the original $3,250 as at 30 June
2018, but would be allowed to defer payment of this liability until he naturally decides to dispose of
the ETH that he bought. Since he will not sell his ETH for a loss, this means that the ATO will, in the
long run, collect the full $3,250, PLUS an additional tax liability when Ethan eventually profits from
the sale of his ETH.
In this way, the like kind exchange serves not only to simplify the tax system for the individual but
will also maximise revenue to the ATO in the long term. Ethan would be allowed to defer the original
tax liability of $3,250 and any other subsequent tax liabilities created by further cryptocurrency to
cryptocurrency exchanges until he ultimately cashes out any gains into AUD.
(Please note, the above trading scenario is based on actual historic prices for BTC and ETH. Price
projections for 30 June 2018 are merely academic but are nonetheless quite realistic.)

19. - 14 -
Schedule 3 - Web print out of ATO’s consultation

20. - 15 -

21. - 16 -