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In a landmark decision, a superior court in Australia has determined that a person’s interest in cryptocurrency, such as bitcoin, constitutes ‘property’.
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Supreme Court of Victoria hands down important decision on bitcoin
16 December 2024
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8 minute read
In the judgment, Justice Attiwill praised as excellent the speech delivered by Justice Jackman titled ‘Is cryptocurrency property?’. In this speech, Justice Jackman concluded that cryptocurrency is property and that, under Australian law, there is no impediment to treating cryptocurrency as a chose in action, despite the absence of an identified or identifiable counterparty.
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After considering international case law including decisions in the UK and Singapore, Attiwill J concluded that a person’s interest in bitcoin is property for the following reasons:
First, it is necessary to identify ‘the thing’: in this case, the thing is bitcoin, being an electronic coin. It is data in the form of a unique digital address on a network of computers (known as the shared public ledger). A public cryptographic key is generated that identifies the unique digital address on the shared public ledger.
Second, an interest in bitcoin is identifiable by third parties: this is because the public key identifies an address of bitcoin on the shared public ledger. A person has the power to control and deal with bitcoin and to exclude third parties from accessing or dealing with it by virtue of a private cryptographic key. Both the public key and private key (like a PIN) are required to deal with bitcoin.
Third, a person’s interest in bitcoin has a degree of permanence or stability: bitcoin is recorded on the shared public ledger, which contains the entire history of a crypto coin. bitcoin remains stable at the address until there is a transaction concerning it.
Fourth, alienability is not an indisputable attribute of property: although a bitcoin ‘transfer’ does not involve an actual transfer of the person’s interest in the bitcoin (instead the number of bitcoin at the owner’s address is reduced and the number of bitcoin at the next owner’s address is increased), an interest in the underlying bitcoin is still capable of constituting ‘property’.
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Relevantly, the court noted that bitcoin is also the subject of very active trading markets, including cryptocurrency exchanges, throughout the world, including Australia.
Fifth, a person’s interest in bitcoin is not merely an interest in information: it is readily distinguishable from a mere interest in information, including electronic data, because an interest in bitcoin includes the ability to:
(a) undertake transactions on a network by the use of a public and private key; and
(b) exclude third parties from accessing or dealing with bitcoin.
Based on these considerations, his Honour held that an interest in bitcoin is not a chose in possession because it is an ‘intangible’ and cannot be possessed. Instead, it is a ‘chose in action’.
Having found that an interest in bitcoin is property, the court went on to find that the bitcoin transferred to the first defendant were held on express trust to be sold for the second plaintiff, Blockchain Tech. As such, Blockchain Tech was entitled to equitable compensation equal to the value of the proceeds of sale not passed on to it in breach of trust.
The decision helps to clarify the rights of bitcoin holders.
The recognition of an interest in bitcoin as property also expands the range of remedies available to persons seeking to trace and/or recover misappropriated crypto assets. It potentially clarifies that a freezing order can extend to bitcoin and other crypto assets to preclude the frustration of a judgment.
Any implications for the ATO and its views?
The ATO has long regarded bitcoin as a CGT asset, being ‘any kind of property or a legal or equitable right that is not property’ – and has formally published its view in Taxation Determination TD 2014/26.
Paragraph 9 of the explanatory part of TD 2014/26 (which does not form part of the ruling) states that the right to trade bitcoin for other value or use it for payment ‘do not amount to a chose in action as a Bitcoin holding does not give rise to a legal action or claim against anyone.’
Although inconsequential to the ATO’s overall conclusion that bitcoin is a CGT asset, presumably the explanatory part of the determination will be updated to reflect the court’s view that a person’s interest in bitcoin is a chose in action. Here the court emphasised that it is well established in Australia that a chose in action comprises a heterogenous group of rights which have only one common characteristic – they do not confer the present possession of a tangible object. That is the case with bitcoin.
Although not a tax case, this decision will presumably bind the Administrative Review Tribunal when considering an objection disallowed by the Commissioner of Taxation that turns on whether a person’s interest in bitcoin is a CGT asset.
Takeaway
While this landmark decision provides clarity on how the court views the proprietary status of an interest in bitcoin, taxpayers and their advisors continue to face uncertainty as to how the law applies to crypto assets more broadly. In the absence of new legislation, the ATO will continue to administer crypto assets under the existing tax regimes.
By Jeremy Makowski, partner, Coghlan Duffy Lawyers
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