Blockchain is the technology behind bitcoin and other cryptocurrencies.   The essential benefit will be the disruption it will bring to industry.   For example, the ASX is preparing to use blockchain to replace its Chess system (and eliminate brokers), Banks are looking to reduce documentation and service levels (no comment!), and it will reduce the need for solicitors and conveyancers.

This does not deal with trading in digital currencies, we leave that to others to comment, but the tax concerns.

Cryptocurrencies (CC's) are just one use of the blockchain, there are at least several others.   And, naturally, these have attracted the attention of the tax office.   The ATO says that digital currencies, there are over 1,300 now, are a "form of property".

ATO opinion is that any financial gain from the purchase and sale of CC's are subject to Capital Gains Tax.   (Note: there must be a purchase and sale, fluctuations in value are not income).     That means if the contracts for purchase and sale are dated within 12 months, 100% of the profit is taxed at the taxpayer's marginal tax rate (taxable income in excess of $87,000 is taxed at 40%), and if sold beyond 12 months, only 50% of the profit is taxed.

However, it is possible that the courts may see cryptocurrency investors as speculators who purchase "with the intention of profit making by sale", and so gains would be fully taxed as income, even if held longer than 12 months.   One argument is that CC's do not provide a regular dividend and there is also no underlying backing or value, price is driven essentially by supply and demand and most recently has largely been driven by the 'fear of missing out'.

It is also possible to speculate on how a loss would be treated.   It is doubtful that the taxpayer would be a trader unless there is a large volume of trades, so a loss would not be deductible against other income.   That means it is likely to be treated as a capital loss and can only be offset against a capital gain, in the current year, or carried forward to a following year.

There is also an opinion from senior counsel that CC's should not be owned by an SMSF because this would cause the Fund to fail the 'sole purpose test' (providing for retirement).   This would certainly be true if there was any personal expenditure of the CC while in the name of the Fund.

At this time, there is no definitive answer on taxing bitcoin, or other Coins.   A tax Ruling could be delivered in the next few months.   Even if there is no Ruling before the next tax return is due, the profit should be included in the return.   If not, a penalty, perhaps 50% to 100% of the tax could be imposed, even if the law is unclear and presently a grey area.