The Tax Institute welcomes the opportunity to make a submission to the Australian Taxation Office (ATO) on the consultation on draft Taxation Determination TD 2026/D2: Income tax: capital gains tax consequences of using a smart contract to wrap and unwrap crypto assets, and draft Taxation Ruling TR 2026/D1: Income tax: receipt and disposal of crypto assets by an airdrop (together, the Draft Guidance).
In preparing this submission, we consulted with our members with experience in crypto assets to develop a considered response.
We acknowledge the ATO's objective of providing timely, practical guidance on the tax treatment of common crypto asset transactions, including wrapping arrangements and airdrops, in an area that has to date relied on general web-based guidance rather than binding public rulings.
However, we consider that, in their current form, the Draft Guidance documents contribute to uncertainty because they adopt positions on the fundamental character of crypto assets, including the role of the private key and the treatment of balances held at smart contract addresses, that have not been reconciled with the submissions the Commissioner advanced as intervener in Poulton v Conrad (case No.H1/2026) (Poulton), a proceeding in which judgment remains reserved before the High Court.
Summary of key concerns
Our key concerns with the Draft Guidance may be summarised as follows:
- Finalisation ahead of Poulton: the Draft Guidance adopts positions on the character of crypto assets that have not been reconciled with the Commissioner's submissions in the pending High Court proceeding, and should not be finalised until judgment is delivered.
- Unreconciled treatment of control and abandonment: TD 2026/D2 treats the private key as part of the CGT asset itself and treats a surviving blockchain record as no longer representing a CGT asset, positions that are difficult to reconcile with each other, and with the Commissioner's submissions in Poulton.
- Transfer characterised as abandonment: TD 2026/D2 treats materially equivalent ledger mechanics as a transfer in one context, and as an abandonment in another, without a clear reconciling criterion.
- Unresolved physical property theory: the Draft Guidance does not clarify whether the Commissioner maintains the physical and corporeal unspent transaction output (UTXO) theory advanced in Poulton, or how that theory applies to balances held at smart contract addresses.
- Section 108-5 analysis not undertaken separately for each asset type: the Draft Guidance does not separately construe section 108-5 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) for UTXO systems, account-based assets, contract-minted tokens and protocol rights.
- Awareness and control not addressed for airdrops: TR 2026/D1 treats unsolicited tokens as received property without considering whether the recipient knows about them or can control them. Whereas, in Poulton the Commissioner argued that possession requires awareness of the asset and an intention to exclude others from it.
- Timing of publication: both drafts were issued six days after the Poulton hearing and are proposed to apply retrospectively, without addressing the different view of the asset advanced in Court.
We consider that the Draft Guidance would benefit from further refinement, and in particular from deferral pending judgment in Poulton, to ensure that the ATO's administrative guidance is consistent with the High Court’s decision and with the position the Commissioner has put to the High Court.
Our detailed response and recommendations to improve the Draft Guidance are contained in Appendix A.