Will the Aussie Tax Office face a USD$400M bitcoin refund bill or is bitcoin more than just 'mere information'?

Headlines have circulated today about whether crypto, and Bitcoin specifically, has been found to be equivalent to money under Australian law, potentially upending 5 years of private rulings and the Australian Taxation Office's approach to crypto, which is to treat it as property. The case is not yet published, but one of the lawyers who argued the case, who has long argued that crypto is not property, but is akin to gambling and should be regulated and taxed as such, has boldly said the ATO might have to refund people for capital gains tax paid on crypto trading (and presumably clawback any credits given for capital losses claimed in tax returns).

The decision concerns a former Australian Federal Police officer who was accused of stealing 81.616 bitcoin during a drug raid in early 2019. The bitcoin was then worth USD$291,000 but at today's prices would be over USD$8M. The bitcoin's keys were on a Trezor seized by police during the raid, and a cyber crime specialist later noticed that the bitcoin associated with those keys had been moved 4 days after the seizure and the bitcoin was then moved further. Police initially didn't have resources to trace the movements but in 2021 further tracing allegedly connected the moved bitcoin to bank account deposits in the name of the officer.

The judgment is not yet published, but the Australian Financial Review published excerpts including the judge's comments that there was no case law suggesting crypto was property for the purposes of criminal law, but noting numerous cases had frozen crypto in proceeds-of-crime prosecutions. The Magistrate also said (per the AFR):

There have... been a number of family law cases that treat cryptocurrency as property for the purposes of family law settlements, without addressing the underlying issue of whether cryptocurrency is, in fact, property... I find the argument that cryptocurrency has not yet reached a state that is comfortably analogous to a form of money unpersuasive.

In my view, that [being a form of money] is sufficient to enable bitcoin to be characterised as property; that is, to use the words of the statute, as ‘other intangible property’, and I so rule.

The argument in the present case is that 'mere information is not property' a position taken by a number of advocates who believe crypto should not be subject to taxation. Dr Adrian Cartland, who is co-counsel to the accused, suggested that this decision throws into doubt years of the tax office's rulings:

The reasoning totally upends the ATO’s view because it was held that bitcoin is Australian money...it is not a CGT asset. Therefore, acquisitions and disposals of bitcoin have no tax consequences

Before the crypto community get too excited, it is worth remembering that this case is criminal, and not tax related, and is highly unlikely to result in any change to taxation, past or present. The ATO considers bitcoin and other cryptocurrencies to be assets subject to capital gains tax.

Justice Jackman (brother of the famous Hugh Jackman) gave an extra curial speech last year in which he noted that crypto bore the indicia of property, and suggested the common law could recognise it as property without the need for parliamentary intervention. His honour Jackman dismissed the 'mere information' argument in his speech, saying:

We are ... a long way removed from the general objection to information as property that the information has an inherent value and benefit over which there is no exclusive right or control

and that:

[I]f market participants in very large numbers are satisfied... in undertaking transactions on the basis that cryptocurrency is property, then it would be most surprising if the judiciary were to disagree.

Two Australian superior court decisions in 2024 found that crypto is property. In the NGS decision, a 'crypto is not property' argument was dismissed by the Collier J of the Supreme Court of Victoria, who cited Justice Jackman's speech favourably. In Re Blockchain Tech, bitcoin was found to be property for the purposes of bailment. While these are civil, not criminal, cases, it would be unusual to see such a definitional split between the two areas of law. The United Kingdom Law Commission considers that crypto should be property and a bill is before the UK Parliament which will make crypto property. Mr Cartland has stated that his client is appealing the finding that bitcoin was property (being money) presumably to seek that his client may be found not guilty of taking the 81 bitcoin in 2019.

To those who argue that crypto and bitcoin is not property as it is 'mere information', an answer to the follow-up question of 'then will you give me some?' appears elusive. A ruling from a higher court will be welcomed by the industry to provide clearer guidance as regulation takes shape concerning crypto around the world.

By Michael Bacina and Steven Pettigrove