Image by Gerd Altmann on Pixabay

In the context of the budget and forthcoming election, it’s timely to reflect on what has happened since the release of the recommendations from the 2021 report about Australia as a technology and financial centre from the Parliamentary Select Committee on the topic. The reforms included proposals for reforming the capital gains tax (CGT) regime.

The crypto space has certainly welcomed the committee’s recognition that the crypto economy is flourishing. The select committee also recognised the need for guidance and clarity over the tax implications of crypto activities – a job identified for the Treasury and the Australian Taxation Office (ATO).

The Government noted the recommendation on reforming the CGT regime and it gave the Treasurer the task of working with the Board of Taxation to prepare a broader review of the appropriate framework for taxing digital transactions and assets. In March 2022 – during Australian Blockchain Week 2022 – the Board of Taxation released the terms of reference for this review and are due to provide advice to the Treasurer by the end of 2022.

Reflecting this engagement with the broader taxing framework, in a recent article for the Tax Institute, published in The Tax Specialist, Michael Curran and I explore the complexities in complying with one aspect of crypto activities and tax. This is the tax treatment of gift donations of crypto-assets, specifically the requirements of Division 30 of the Income Tax Assessment Act 1997 (ITAA97) when a non-business taxpayer donates crypto-assets to a Deductible Gift Recipient (DGR).

What makes crypto donations more complex?

Unlike donating with traditional dollars (fiat currency), crypto donations fall within the category of property. This makes compliance with the gift deduction rules a little more complex. Taxpayers need to be mindful not only of whether the recipient is a DGR and the donation is a true gift, in terms of it being made voluntarily and without a corresponding material benefit, but also the rules relating to donating different categories of property and the CGT implications of gifting property. Crypto-assets will often be considered CGT assets for the taxpayer, raising potential CGT implications from donation of a crypto-asset.

To be eligible for a Division 30 deduction for a gift of property, various conditions must be satisfied for different categories of property. These conditions relate to the length of time the property is held, the value of the property especially whether it is more, less or equal to AUD$5,000, and whether the property is trading stock. For crypto donations made by a non-business taxpayer, we do not need to consider the rules for gifts of trading stock or shares. In our paper, we also did not extend our examination to donations made to political parties or independent candidates. With the upcoming election, this is certainly an interesting possibility worth noting, however.

Property gift deduction approaches

We summarise the approach to permitting a deduction for charitable gifts of property in Figure 1 below, which presents a donation matrix. These requirements are set out in Table 1 in section 30-15(2) ITAA97.

Table 1: property matrix

<12 months >12 months Acquired in some other way Purchased





X X X ATO valuation*
X X X Nil
X X X Lesser of MV/PP
X X X Lesser of MV/PP
X X X ATO valuation*
X X X Nil
X X X ATO valuation*
X X X Nil

Where: MV = market value on the day of donation; PP = amount paid for the property.

* Two additional deductible costs: (1) application fee; and (2) valuation fee, both deductible pursuant to s 25-5 ITAA97 for non-business taxpayers.

Source: Morton and Curran, 2021, p.57.

In reflecting on the approach to claiming a tax deduction for the donation of crypto-assets, like other forms of property, we identify that there will be instances where no deduction is allowed pursuant to Division 30 ITAA97. These include:

  • Where (i) the crypto-asset has not been purchased but acquired in some other way (for example, via ‘mining’ crypto-assets or an airdrop, the latter occurring where crypto-assets are deposited in a taxpayer’s wallet without requiring payment); and, (ii) has a value of less than AU$5,000; and,
  • Where (i) the crypto-asset has been purchased over 12 months ago; and, (ii) has a value of less than AU$5,000.

In other circumstances, a gift deduction may be allowed, but the approach will vary. In some circumstances, taxpayers may need to obtain an ATO valuation of the gift, or may rely on the lesser of the market value and purchase price. This treatment of crypto-assets is comparable to gifts of shares in a private company, in contrast to donations of fiat currency.

CGT interaction

Donations of crypto-assets have a further compliance burden: the consequences of the disposal. As our focus is on non-business taxpayers, it is likely that we should characterise the crypto-assets as CGT assets. This produces potential CGT consequences for the donor.

Unlike money, donating property, whether via a DGR or otherwise, represents a CGT event A1 disposal (the disposal of a CGT asset), as the asset ceases to be legally or beneficially owned by the taxpayer. – Morton and Curran, 2021, p.58 (citations omitted)

So, whilst a deduction may be allowed for the crypto donation, it may also lead to assessable income reflecting a capital gain on disposal of the crypto-asset, pursuant to the CGT regime. This will reduce the net tax benefit of the donation for the donor.

This is particularly the case if the crypto-asset was acquired via way of airdrop (this in itself may lead to a further assessable income amount in addition to the CGT disposal, although we raise some issues in this regard).

Perhaps surprisingly, it has been shown in recent times that the crypto economy has an expansive philanthropic reach. For example, the COVID-19 pandemic and horrific scenes playing out in India in early 2021 spurred on incredible generosity within the blockchain community:

Vitalik Buterin, donated over $1b in crypto-assets to an Indian Crypto Covid Relief fund (as well as other recipients), driven by another individual’s tweet. The media has described this event as reflecting the beginnings of a new “breed” of entrepreneurs, who are using their novel crypto-wealth for ad hoc and timely philanthropic purposes. – Morton and Curran, 2021, p.56 (citations omitted)

It was these scenes that spurred on our examination of the tax implications for crypto donors. In Australia, there is a growing potential for taxpayers to donate crypto to various causes. For example, in late 2021, Médecins Sans Frontières/Doctors without Borders (MSF Australia) received USD$3.5m in ether donations from a non-fungible token (NFT) project.

More recently, we have seen significant crypto donations in relation to the conflict in Ukraine. According to a recent Coindesk article, crypto donations have almost reached $100 million in this regard.

Anti-avoidance provisions

While the evidence of crypto-asset donations reflects a powerful humanitarian potential, we should pause to consider the potential for tax avoidance especially because of the highly volatile nature of the value of crypto-assets. Large donations of crypto-assets could even affect the market valuation of these assets.

Section 78A(2)(a) of the Income Tax Assessment Act 1936 may apply where the benefit received by the donee may be expected to be less than the amount of value for the donor, at the time of the donation. If applicable, this section would deny the deduction in full.

For example, we may consider the impact of Vitalik Buterin’s crypto donations in early 2021 on the market:

The problem in Buterin’s case … for one of the coins donated (Shiba Inu, “SHIB”), the donation “prompted panic” and contributed to more than a 35% drop in SHIB’s price following the donation. – Morton and Curran, 2021, p.59 (citations omitted)

However, we do not consider such volatility alone would result in the application of this anti-avoidance provision. It would be relevant to consider the Commissioner’s guidance that the taxpayer’s knowledge and intention relating to the disadvantage of the DGR is relevant in characterising whether the anti-avoidance rule applies (para [122], Taxation Ruling TR 2005/13).

Emerging tax challenges for crypto-assets

It is critical to appreciate that the crypto economy is more than bitcoin, or the latest fad-turned non-fungible token. Behind the ever-expanding range of digital assets, is a diverse range of communities. We are seeing the power in which the metaverse can pull together to achieve, not only the trivial, but the incredibly impactful in supporting humanitarian crises. With this in mind, the consequential complexity in tax compliance where taxpayers transact with crypto-assets goes beyond the CGT provisions. As such, we agree with the Government’s approach in seeking a more holistic review of the taxing regime for digital assets and transactions and look forward to the Board of Taxation’s tax policy framework.


Other Budget Forum 2022 articles

Trusts and Tax Avoidance – Extension of Funding for ATO Taskforce, by Sonali Walpola.

Vehicle Taxing Dilemma Between Environment and Inequality, by Yogi Vidyattama, Robert Tanton and Hitomi Nakanishi.

Budget Reveals No Plan for Disaster Volunteering, by Jack McDermott.

A Fairer Tax and Welfare System for Australia, by Ben Phillips and Richard Webster.

The Budget, Fiscal Policy and an Outbreak of Inflation, by Chris Murphy.

Natural Disasters and Government Policy Challenges, by John Freebairn.

Petrol Excise Cut in the Budget! What About the Transition to Zero-Emission Cars? by Diane Kraal.

For Social Infrastructure and Tax Reform, We Need a New Federal Fiscal Bargain, by Miranda Stewart.

A Free Lunch From Government Debt? It Certainly Looks That Way, by John Quiggin and Begoña Dominguez.

On the Limits of Fiscal Financing in Australia, by Chung Tran and Nabeeh Zakariyya.


Leave a comment

Your email address will not be published. Required fields are marked *