Cryptocurrency, for example Bitcoin or Ether, are digital assets that form part of a deceased’s estate on their death. Despite the name, cryptocurrency is not considered to be money or foreign currency in Australia (ATO Taxation Determination TD 2014/25). Cryptocurrencies are not regulated and issued by a central authority like a bank. It relies on a decentralised peer-to-peer system to record and verify transactions in a public ledger called blockchain where a record of all transactions are updated and held by the currency holders. The value of cryptocurrency is driven entirely by supply and demand making its market value very volatile.

For more information about what cryptocurrency is, see Cryptocurrencies on moneysmart.gov.au and the Reserve Bank of Australia website.

In summary, cryptocurrency exists as digital tokens stored in a digital “wallet”. The wallet may be stored online as a software (hot) wallet or on a hardware (cold) wallet such as an external hard drive. In both cases, the owner will be provided with a private key or set of keys (passwords) that are used to access and trade the cryptocurrency. Owners of cryptocurrency do not own anything tangible, what they have is a key (password) that allows them to access and transfer the cryptocurrency to another person. If the keys are lost or forgotten, there is no way to recover the cryptocurrency.

If the deceased owned cryptocurrency, it can only be transferred to beneficiaries if the executor or administrator has access to the digital or physical wallet as well as the keys (passwords) to access the wallets. Without this access, the cryptocurrency is unable to be transferred to beneficiaries and is simply lost.

Any cryptocurrency must be disclosed on an application for probate or letters of administration. However, probate or letters of administration may not be required to affect the transfer to beneficiaries.

Cryptocurrency transfers are subject to capital gains tax (ATO Taxation Determination TD 2014/25). Beneficiaries should be provided not only with their share of the cryptocurrency by transfer, but also copies of the necessary documents to be properly assessed for tax purposes on sale of the asset.

It is important to consider cryptocurrency in estate planning. In particular: