The taxpayer, a resident individual, deposited two types of crypto-assets (the “Deposited Tokens”) into liquidity pools in a crypto pooling vehicle (the “Platform”), in exchange for two classes of “Receipt Tokens” (aka “RTokens”), which evidenced such deposits and could themselves be transferred, or used to claim corresponding underlying deposited assets.
The taxpayer subsequently redeemed the Receipt Tokens for crypto-assets of the same type as the Deposited Tokens, at a time that they had appreciated in value. In the meantime, the taxpayer received a return from the Platform (the “Rewards”) in the form of “Nativetoken,” which also could be realized upon by exchanging them through decentralized exchanges for other crypto assets.
The Directorate found that the taxpayer’s deposit of the Deposited Tokens into a liquidity pool on the Platform and the redemption of Receipt Tokens for crypto-assets of the same type as the Deposited Tokens (or sale of Receipt Tokens) constituted dispositions if those tokens had been held on capital account (noting in this regard that 2014-0525191E5 had indicated “that an exchange of one type of virtual currency for another would trigger a disposition for income tax purposes”).