In January 2022, Lan acquired $500 worth of ‘Ether’, the cryptocurrency used on the Ethereum blockchain. Lan immediately used half the Ether to purchase a non-fungible token (NFT), costing $255. The NFT represents a digital piece of artwork she has acquired for investment purposes as she has heard that they could become extremely valuable (or equally ‘flop’ or even be a scam). The remaining Ether is kept for investment also.
By early February, the NFT rose to $15,000 in value and Lan sold it for this amount. In doing so, Lan received $15,000 value in Ether, for which she then immediately converted back to Australian dollars. By the time she did so, the Ether value had increased slightly and she received $15,450 in Australian dollars into her bank account the same day. Her friend, Levi, was interested in Blockchain as well. At the beginning of March, Lan ‘airdropped’ Levi a fifth of her remaining Ether. The value at the time of the transfer was $120.
In April, her wallet was hacked and she lost her remaining Ether, which was valued at $450. The police were not able to help her. Lan has carried forward losses from a painting she had sold last year of $8,000. The painting had been hanging in her bedroom until she decided to upgrade her décor.
Analyse each CGT event that occurs in respect to Lan’s crypto-related activities. In doing so, ensure you detail all aspects of the event before coming to a determination of each respective taxable gain (loss) (15 marks).
Determine the net capital gains (loss) for Lan (3 marks).
Outline how your response in the prior question impacts Lan’s taxable income (2 marks).
- Gross Salary of $89,000 relating to her employment as a Technology consultant with J&I Consultants, ABN 12 345 678 910. PAYG of $33,000 was withheld.
- Travel allowance of $10,000 relating to the expectations of her work to meet clients.
- Interest income of $200 relating to her Australian bank account.
- Lottery winnings of $12,000.
- $800 in work related phone bills that her employer has reimbursed.
- Employer provided laptop valued at $3,000 that she uses for work purposes.
- Private health insurance for the full 2022 income year.
Complete Lan’s tax return using the following tax return extract (6 marks)
1 Salary or wages
|PAYER’s Australian Business Number||Tax Withheld $||Income C $|
2 Allowances, earnings tips, director’s fees etc
|Tax Withheld $||Income K $|
5 Australian Government allowances and payments like Newstart, Youth Allowance, JobSeeker and Austudy payments
|Tax Withheld $||Income A $|
TOTAL TAX WITHHELD
10 Gross interest
|Tax file number amounts withheld from gross interest M $||Income L $|
18 Capital gains
Did you have a capital gains tax event during the year?
Total current year capital gains
Net capital losses carried forward to later income years
Net capital gain
TAXABLE INCOME OR LOSS
Calculate Lan’s basic tax payable (1 mark).
Determine Lan’s liability for both the Medicare Levy and Medicare Levy surcharge (2 marks).
Reflect on the impact of the crypto-related activities on Lan’s tax payable (1 mark).