Collapse of crypto platform raises big CGT questions

In mid-July, cyrptocurrency platform Celsius filed for Chapter 11 bankruptcy protection after previously halting customer withdrawals in June this year.

The collapse of the platform raises questions around the tax treatment of the crypto assets still locked on the platform.

“This is a question I’ve had a few times and it applies outside of super as well. The answer is that we’re not sure and I’m currently talking to the ATO at the moment about this issue,” said Mr Dell.

In the instance of shares, Mr Dell explained that the CGT event happens when the liquidator declares that the shares are worthless.

“[However], this asset is not shares, it's another kind of asset — you need to work on the basis of CGT event C2 which is the loss of an intangible asset and you have to come to a view of when its lost,” he explained.

“The most conservative position would probably be when the bankruptcy has been administered in the US and there is an outcome.”

Mr Dell noted there are still arguments around how Celsius was a nominee and that depositors should therefore rank first.

“No doubt the large hedge funds that invested in it are strongly opposing that till they get a return so it looks like its going to go that way,” he said.

“But once it's administered, that’s when you would probably have the CGT event because until that point you still have a deposit and a right to receive it obviously subject to the terms and conditions. But it's when that right comes to an end that you have that surrender event, that cancellation.”

However, there is still a fundamental uncertainty, he said, around whether depositing into Celsius itself is a CGT event.

“We’ve discussed this quite extensively but your essentially handing over your crypto in exchange for some different kinds of rights and its now coming to light that perhaps that wasn’t your crypto if you can’t get it in the event of a bankruptcy and insolvency event,” he said.

“Advisers are still forming very preliminary views about fundamental questions of ‘well, was that a disposal? Was putting it into an account a disposal of that?’ Which would give different outcomes.”

“If you are high risk and you did a lot of staking, which I know a lot of people did on Celsius, on Anchor protocol and other defunct protocols and exchanges, then you need to get some advice. That is the best way to keep your auditor happy and to probably [make] the Tax Office happy as well.”