Income tax: is Bitcoin trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. Bitcoin, when held for the purpose of sale or exchange in the ordinary course of a business, is trading stock for the purposes of subsection 70-10(1) of the ITAA 1997.

When the final Determination is issued, it is proposed to apply both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 to 76 of Taxation Ruling TR 2006/10).

While the ATO view will have application for periods prior to its publication, the ATO will not generally apply compliance resources to past year cases in relation to taxpayers who have behaved in a bona fide manner and made a genuine attempt to understand and satisfy their obligations.

This Draft Taxation Determination is part of a suite of determinations issued by the Commissioner on Bitcoin. Accordingly, a detailed description of Bitcoin is contained in Draft Taxation Determination TD 2014/D11 Income tax: is Bitcoin a 'foreign currency' for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)?

In accordance with Draft Taxation Determination TD 2014/D12 Income tax: is Bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), Bitcoin is considered property for tax purposes.

The term 'trading stock' is defined in subsection 70-10(1) of the ITAA 1997 as: (a) anything produced, manufactured or acquired that is held for the purposes of manufacture, sale or exchange in the ordinary course of a *business; and (b) *livestock.

The term 'anything' is not defined in the ITAA 1997 and therefore takes its ordinary meaning taking into account the legislative context in which the term is used. According to the Macquarie Dictionary, the term 'anything' means 'any thing whatever; something, no matter what; a thing of any kind'.

The Commissioner considers the ordinary meaning of the term 'anything' when considered in its legislative context, however, has a narrower meaning than the dictionary definition of the term.

Throughout Division 70, 'trading stock' is referred to as something that a taxpayer 'holds' or has 'on hand'. It is clear that the legislative context is one which is referring to a thing that is capable of ownership, that is, some form of property. This construction is also supported by the relevant case law.

In Federal Commissioner of Taxation v. Suttons Motors (Chullora) Wholesale Pty Ltd [1] (Sutton Motors), the majority of the High Court noted that shares and land had both been held to be capable of being trading stock and the term's central denotation was '...of goods held by a trader in such goods for sale or exchange in the ordinary course of his trade.'

The High Court in John v. Federal Commissioner of Taxation [2] (John) stated that the definition of trading stock 'presupposes that the person by whom [goods] are produced, manufactured, acquired or purchased is or will be engaged in trade in those goods.'

It is evident from the context in John in which the definition of trading stock was being considered that the trading activity to which the definition applies involves the passing of a proprietary interest in the things traded. It is also clear from Sutton Motors that intangible property such as shares are capable of being trading stock.

Accordingly, as Bitcoin is property for tax purposes, Bitcoin is 'trading stock' for the purposes of subsection 70-10(1) of the ITAA 1997 where it is held for the purpose of sale or exchange in the ordinary course of a business.

You are invited to comment on this draft Determination including the proposed date of effect. Please forward your comments to the contact officer by the due date.

A compendium of comments is prepared for the consideration of the relevant Rulings Panel or relevant tax officers. An edited version (names and identifying information removed) of the compendium of comments will also be prepared to: • provide responses to persons providing comments; and • be published on the ATO website at www.ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date: 3 October 2014 Contact officer details have been removed following publication of the final ruling.