CGT on spending or paying bills

[john5]

while ive learned tons about our dreaded cgt over the past few years, there's one part of it i still want to get straight in my head ...

as i understand it, if you buy crypto, for example, and keep it untouched for a period of time, then sell it for profit, in aud terms, the gain is included in your annual income and thus taxable

but - what i dont fully get is that if i buy, for instance, 1 btc (could be anything, even usd or some other fiat), when it was worth, for arguments sake, 10 aud, and then keep it for a while, but decide at some stage to either spend it (on goods) or pay a bill with it (pay for services) how this may make me liable for a capital gain ...

so, i buy 1 btc at 10 aud, and then later on it's worth 100 aud, so a capital gain of 90 has been made, on paper, but NOT YET REALISED, then i pay a 100 aud bill with the 1 btc, ok so ive paid a bill, and used up my 1 btc, but - do i still owe the ato money for a gain? in other words, im having trouble understanding the difference between making a capital gain, and receiving the windfall in cash after the disposal, and spending the windfall on a good or a bill, to me - that is not really a capital gain, its just spending your money, even though youve had the good fortune of your purchasing power/bill pool having increased over time

 

[InsvestoBoy]

Good question.

Firstly and most importantly, if this is a real scenario then you simply cannot take advice of anyone on this forum, seek formal advice from the ATO.

Even if it's just a hypothetical you are musing about it's still best to get the advice from the ATO as it's unlikely anyone on here is qualified to give you the correct advice.

That said, as it is an interesting question, I did a quick google search to try and find an answer and stumbled on this page:
https://www.ato.gov.au/business/foreign-exchange-gains-and-losses/forex-realisation-events/

I believe the scenario you are describing is "Forex realisation event 1":

Forex realisation event 1
Forex realisation event 1 occurs when there is a disposal from one entity to another (that is, a change in the beneficial ownership happens - capital gains tax (CGT event) A1 – of foreign currency, or a right or part of a right to receive foreign currency.

The time of the event is when the foreign currency, or the right or part of the right is disposed of.

You make a foreign exchange (forex) realisation gain if you dispose of foreign currency, or a right or part of a right to receive foreign currency for more than you paid for it, to the extent that the gain is due to fluctuations in the value of the foreign currency. This will usually be when the proceeds on disposal of the foreign currency, measured in Australian dollars, are more than the cost of acquiring the foreign currency, measured in Australian dollars.

You make a forex realisation loss if you dispose of foreign currency, or rights or parts of rights to foreign currency for less than you paid for them. This is to the extent that a loss is due to fluctuations in the value of the foreign currency.

Based on my reading of this, I would speculate that the ATO would treat your payment of a bill (due in USD, or BTC, or whatever) as "a change in the beneficial ownership" of the foreign currency you hold and thus a CGT event and you must treat it as a capital gain (or loss) appropriately.

 

[john5]

thanks ib, yes indeed, while i would always ask the ato i am a strong believer in "knowing" the answers before i ask them, i also handle all of my own tax (i do not use an accountant or financial advisor, as, ultimately, i am responsible for all of my decisions/obligations, so i choose to do it all myself)

but as to this question, i felt people might have a good idea, as im sure it's come across most investors' radar at some stage, or will in future ...

it's a grey area, i make it clear, from the outset, i am NOT a supporter of cgt, in general, however it's the law and i believe in "minimising" tax LEGALLY, at all times, it's just a matter of learning how i should treat different events, it helps with investment planning (i also like to keep track of the tax i owe/might owe, in advance, so i can put it aside and not have to worry about being caught with some bill i have not "covered" already)

so, its esssentially a question of use vs investment, our money, be it in aud or any other "forex" form, is meant as a tool for spending and paying bills, it's just that govt decided, in 1985, to find a way to tax people on the possibility of getting an expected, or unexpected, windfall from forex fluctuations

hardly within the control of the taxpayer, but nonetheless, the govt wants is cut when you "win" something