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Vield and Cadena Legal have assisted a taxpayer to obtain the first ATO ruling on crypto-backed loans, confirming that their product does not trigger CGT for users. This is also the first ruling on section 106-60 in over a decade. This Private Binding Ruling, obtained by Cadena Legal, indicates that properly structured crypto loans should not trigger CGT when borrowers transfer their assets to a custodian as security.
The ruling (Authorisation Number 1052452380351, dated 27 October 2025) addresses a question that has haunted the crypto lending industry since its inception: when you hand over your Bitcoin to secure a loan, have you just triggered a massive capital gains tax bill?
For Vield's product, the ATO's answer is no. For other products, it is still a mystery.
However, as a Private Binding Ruling, it only binds the ATO in relation to the specific arrangement considered for the specific taxpayer. It remains possible the ATO view expressed in the ruling is not repeated in future rulings, but it represents the only indication from the ATO to date that any crypto loan product can achieve CGT-neutral treatment for borrowers.
The Problem: Private Keys and "Ownership"
Cryptocurrency ownership is determined by control of private keys. When you transfer crypto to a custodian's wallet as loan collateral, you no longer hold the private key. Under ordinary CGT principles, this looks like a change of ownership, and therefore a disposal under CGT event A1.
For long-term holders sitting on substantial unrealised gains, this interpretation would make crypto-backed lending economically unviable. A holder wanting to borrow $100,000 against their Bitcoin would first need to crystallise, and pay tax on, years of accumulated gains, potentially running into the hundreds of thousands of dollars.
The Solution: Section 106-60
Section 106-60 of the ITAA 1997 provides a carve-out for security arrangements though it is rarely utilised. It states that the vesting of a CGT asset in another entity is disregarded where:
1. The vesting is for the purpose of enforcing, giving effect to, or maintaining a security, charge, or encumbrance over the asset; and
2. The security, charge, or encumbrance remains over the asset just after the vesting.
In plain English, if you're transferring an asset purely to secure a debt, not to sell it or give it away, the tax law is intended to treat you as if the transfer never happened for CGT purposes. This makes sense as you still have economic exposure to the underlying asset.
The Vield Structure
The ruling addressed a specific loan arrangement with the following key features:
1. The borrower deposited cryptocurrency into a segregated wallet held by a third-party custodian engaged by Vield
2. The wallet was uniquely associated with the borrower with no pooling with other customers' crypto
3. A PPSA charge could be registered,
4. Vield had no right to use, transfer, or redeploy the crypto during the loan term, though rehypothecation is possible under section 106-60 these products are much more complicated
5. The crypto would be returned upon loan repayment
The ATO confirmed that under these circumstances, section 106-60 applies to disregard the transfer for CGT purposes.
Question 1: No CGT Event A1
The Commissioner ruled that CGT event A1 does not occur when crypto is transferred to the custodian's wallet under the Vield arrangement.
The reasoning follows the statutory language. CGT event A1 requires a "disposal", being a change of ownership. Section 106-60 operates to treat the legal and beneficial ownership of the cryptocurrency as unchanged where the transfer is for security purposes.
The ruling specifically noted that section 106-60 applies because:
The provisions of the [security] agreement relating to the security are clear that the cryptocurrency vests in custodian for the purposes of "enforcing, giving effect to or maintaining a security."
Question 2: No CGT Events E1 or E2
The Commissioner also ruled that no trust-related CGT events occur.
This addresses a secondary concern: even if section 106-60 prevented CGT event A1, could the arrangement create a trust (triggering CGT event E1) or involve a transfer to an existing trust (triggering CGT event E2) which does not coincide with the security arrangement?
The ATO's reasoning is interesting. Section 106-60 allows us to disregard the vesting of legal and beneficial ownership in the lender. This means that, for CGT purposes, there is no separation of legal and beneficial title on deposits to crypto platforms in many cases. This was confirmed in Class Ruling CR 2024/50 paragraph 35, also obtained by Cadena Legal.
As the ruling states:
Even if a trust did exist, section 106-60 would require us to adopt a factual assumption that is inconsistent with the existence of such a trust.
The Post-Repayment Period
One particularly helpful aspect of the ruling addresses the transitional period after loan repayment.
In practice, there's always a brief window between when a borrower repays their loan and when the custodian returns the crypto. During this period, the custodian technically still holds legal title. Does section 106-60 cease to apply the moment the loan is repaid?
The Commissioner took a practical view: the security doesn't automatically cease upon repayment. Rather, it ceases when the cryptocurrency is no longer held under the terms of the agreement. The ruling states:
Except in rare instances where the return of the asset is electronically automated to coincide precisely with the repayment of the loan, it is typical for a custodian holding a crypto asset as security to retain control, and therefore legal ownership, for a short period following repayment.
This interpretation is supported by the Explanatory Memorandum to the legislation, which refers to the return of assets "on completion of the security agreement" rather than upon mere repayment of the secured obligation.
Additionally, the ruling confirms that even if the "security" were considered to have ended, the PPSA charge remains over the asset until actual return, maintaining the section 106-60 protection.
What This Means for the Industry
This ruling represents the ATO's view on section 106-60 in the crypto lending context. But it only binds the ATO in relation to Vield's specific product, and it remains possible the Commissioner's analysis is incorrect.
To be clear: no other crypto lending product in Australia has any specific ATO guidance on CGT treatment. Vield has the only one. Every other platform operates without any ATO confirmation that their customers aren't triggering CGT when they deposit collateral.
For the broader crypto lending industry, the ruling is instructive but not determinative. It suggests that properly structured arrangements may achieve CGT-neutral outcomes, and it clarifies the ATO's thinking on issues like post-repayment custody periods. These platforms must get their own rulings or other ATO guidance, other platforms and their customers cannot rely on this ruling. Each product has different terms, different custody arrangements, and different legal structures. What works for Vield may not work for a competitor with subtly different documentation or operational practices.
Key Structural Features in the Vield Arrangement
The ruling's favourable outcome depended on specific structural features of Vield's product:
1. Segregated custody: The crypto was held in a wallet uniquely associated with the borrower, not pooled with other assets
2. No rehypothecation: Vield had no rights to use, transfer, or redeploy the collateral during the loan term, also called rehypothecation
3. Perfected security interest: A PPSA charge could be registered over the crypto, though it would be impractical
4. Clear security documentation: The loan agreement expressly stated that the transfer was for security purposes only
Arrangements that differ from these features, particularly those involving pooled custody or rehypothecation rights, may produce different tax outcomes. The ruling cannot be extrapolated to products with different terms.
The Path Forward for Other Platforms
Other crypto lending platforms should not assume their products receive the same treatment.
The options for obtaining certainty include:
1. Private Binding Rulings: Individual borrowers can apply for their own PBRs in relation to specific loan arrangements. This provides binding protection for that taxpayer, but requires disclosure of all relevant facts and can take several months.
2. Product Rulings: Platforms can apply for a Product Ruling under the ATO's public rulings program. A Product Ruling would allow all users of the product to rely on the ATO's published position, a far more scalable solution than individual PBRs. This is the gold standard for consumer-facing financial products.
3. Tailored advice: At minimum, platforms should obtain detailed tax advice confirming their structure qualifies for section 106-60 protection, identifying any features that might distinguish their arrangement from the Vield ruling.
For borrowers using platforms other than Vield, the prudent approach is to seek advice before entering into the arrangement, not after. The stakes are too high to assume favourable treatment based on a ruling that doesn't apply to you.
What Comes Next: More Rulings Are Likely
Now that the ATO has engaged with section 106-60 in the crypto context, we expect other lenders will seek similar rulings.
The Vield ruling breaks new ground. It demonstrates that the ATO is willing to engage with these questions, and that favourable outcomes are achievable. Other centralised lending platforms with comparable structures have a clear template to follow.
The next interesting question is what happens with decentralised finance (DeFi) protocols and smart contract-based lending.
Smart Contracts: The Next Frontier
DeFi lending protocols like Aave or Euler present a different set of challenges. Taxpayers and protocol developers should be seeking advice or rulings as this can be a major taxing point.
When a user deposits crypto into a smart contract as collateral for a loan, the analysis becomes more complex. There's no human custodian, no loan agreement or security in the traditional sense, as the "security" arrangements are encoded in immutable code rather than legal documents.
Two potential arguments exist for CGT-neutral treatment:
1. Section 106-60 applies: If the smart contract can be characterised as holding the asset for the purpose of maintaining a security, and a charge or encumbrance exists over the asset, section 106-60 may apply in the same way it does for centralised lenders. The challenge is demonstrating that a PPSA charge or equivalent encumbrance exists over assets locked in a smart contract.
2. Absolute entitlement: Alternatively, if the depositor retains absolute entitlement to the crypto held by the smart contract (because the smart contract holds as bare trustee and the depositor can call for the asset at any time, subject only to repaying the loan), no CGT event may occur on deposit. The asset never leaves the depositor's beneficial ownership.
Neither argument has been tested with the ATO. Given the growth of DeFi lending in Australia, this is a gap that needs to be filled. Protocol developers, DAOs, and individual taxpayers using these platforms should be considering advice at a minimum and consider ruling applications to clarify their position.
Conclusion
This is the first ATO ruling on section 106-60 in over a decade, and the first time the provision has been applied to a crypto loan product. Vield is the only crypto lending platform in Australia with any ATO guidance confirming CGT-neutral treatment for borrowers. No other platform, centralised or decentralised, has equivalent confirmation.
That will change. Now that the ATO has shown it will engage with these questions, we expect a wave of ruling applications from other lenders seeking similar protection. The smart contract space remains entirely untested, presenting both risk and opportunity for early movers willing to seek clarity. But for now, it's a private ruling, not a product ruling, not a public ruling, and not a precedent that other platforms or borrowers can rely on. The ruling binds the ATO only in relation to Vield's specific arrangement with the specific taxpayer who applied. And like any ruling, it represents the ATO's view, which may or may not be correct.
Last, we want to thank the ATO ruling offers who practically and efficiently worked with Vield and us to finalise this ruling.
Disclaimer: This material is produced by Cadena Legal, a NSW-registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such.
