Digital Surge, a cryptocurrency exchange, entered into Voluntary Administration on 8 December 2022, resulting in all customers becoming creditors.
The company was able to successfully come out of Administration by entering into a Deed of Company Arrangement (DOCA) which resulted in various payouts, and having important tax implications as outlined in the ATO’s Class Ruling CR 2024/50.
Timeline of events
8 Dec 2022 - Digital Surge goes into Administration. All customers become creditors, and the AUD value of their claims is set based on their holdings as of this date.
15 Feb 2023 - The DOCA is executed and terminated, marking a CGT event. All claims are converted into a new CGT asset— a Claim against the Creditors Trust.
17 Feb 2023 - Customers receive a 53% payout of their claims, with Priority Customers (those with claims ≤ $250) receiving a full 100% payout. This triggers another CGT event as the Claim is converted back into cryptocurrency and AUD.
Future payouts will continue until Regular Customers receive up to 100% of their original claim amount. Syla provides a structured representation of these events, allowing users to track their cost base and easily manage the tax implications.
How to import Digital Surge transactions in Syla
Import your transactions using either the API Sync or CSV File Import available in Syla and the DOCA adjustments will be automatically handled for you.
Note: Automatic handling of DOCA adjustments in Syla has been supported since 18 September 2024. If you synced your Digital Surge transactions in Syla before this date, these adjustments won't have been applied. To ensure your data is accurate, please delete and re-import your Digital Surge data source in Syla.
Tax Treatment
The ATO has issued Class Ruling CR 2024/50 to address the tax implications of Digital Surge entering into Administration and the subsequent events.
An additional explanatory letter is also available:
Key Tax Events
8 Dec 2022 - Voluntary Administration
On the date Digital Surge enters Administration, all customers become creditors. The amount of their Claim is equal to the market value of all their crypto and AUD holdings on Digital Surge as of this date.
Tip: Customers can view their Claim value by logging in to their Digital Surge account and navigating to the Beneficiary Claim Summary.
15 Feb 2023 - DOCA Executed and Terminated
The DOCA is executed, and a CGT event occurs as the creditors’ claims against Digital Surge are converted into a Claim against the Creditors Trust. As outlined in the ruling, the claim itself is considered a CGT asset.
In Syla, this event is represented as a Trade, where all balances of crypto and AUD held on Digital Surge are disposed of, and a Claim against the Creditors Trust is acquired.
Example in Syla
Here you can see that the customers BCH and SOL crypto, are converted into a Claim against the Creditors Trust. The claim itself is a CGT asset with a cost base which will be tracked in Syla.
(Advanced) applying an alternative valuation
Syla assumes that the market value of the Claim is equal to the total Claim amount. However, the ruling does not specifically address Claim valuation, and a lower value may be appropriate.
If you wish to apply a different market value, you can edit the transaction and adjust the Market Value field.
Example alternative valuation in Syla
For example, if you determine the value the Claim is 60% of the full Claim amount, update the Market Value of each ledger in the transaction to reflect 60% of the original market value.
Important: 60% is an arbitrary number used as an example only. You should carefully consider your circumstances and discuss the actual valuation with your advisor. If unsure, you can leave the default conservative valuation which Syla applies for you.
17 Feb 2023 - Initial Payout
All customers receive a 53% payout of their Claim. This is another CGT event where the Claim asset is converted into cryptocurrency.
In Syla, this is represented as a Trade, where the Claim against the Creditors Trust is exchanged for the corresponding crypto assets.
17 Feb 2023 - Priority Customer Payout
Creditors with claims of $250 or less are designated as Priority Customers. They received an immediate payout in AUD, bringing them to 100% of their Claim value.
In Syla, this is represented as a Trade, where the Claim against the Creditors Trust is exchanged for AUD. After this transaction, the claim balance in Syla should be zero, as the full payout has been completed.
Future Payouts
Future payouts will be imported into Syla as a Trade, where the Claim against the Creditors Trust is exchanged for AUD.