Disposition

Following the 2014 insolvency of a Japanese bitcoin platform operator (“Mt. Gox”), which had permanently lost 650,000 bitcoin, the Tokyo court (in 2021) approved a “Rehabilitation Plan” which in general terms gave the former platform users a choice between receiving, on or before October 2025, an “Early Lump-Sum Repayment” (so as to receive payments in cash and Bitcoin Cash totaling approximately 21% of their approved claims) or a “Final Repayment” (entitling them to payments based on the value of the remaining assets of the estate at an undetermined date in the future, after remaining disputed claims were resolved, with such payments expected to not exceed 23.6% of the claim). The taxpayer elected to receive the Early Lump-Sum Repayment.

The Directorate found that former users of the Mt. Gox platform did not hold proprietary rights over, or beneficial ownership in, the bitcoin held through the platform, including those that Mt. Gox had lost, and instead owned contractual claims against Mt. Gox, so that there was no disposition by them when the underlying bitcoin was lost. A disposition of the taxpayer’s claim would instead be considered to have occurred in the year of receipt of the Early Lump-Sum Repayment. Amounts received from the estate in the form of crypto-assets (i.e., the Bitcoin Cash) would be considered to have been “received” by the taxpayer as creditor when it was credited to the taxpayer’s account with a cryptocurrency exchange.

The conversion of ownership of personal use real estate from a joint tenancy to a tenancy in common would not constitute a disposition or a partition.

Income Tax Technical News, No. 7 gives a general indication of their criteria that are considered by RC in determining whether a transfer of shares to a voting trust results in a change of beneficial ownership.

Where legal title to a property is transferred to a bare trust without a corresponding transfer of beneficial ownership, there is no disposition of property.

The transfer of property from one health and welfare trust into a new health and welfare trust will not result in a disposition where the new trust has the same terms as the old trust except for administrative matters, such as the number of meetings to be held and how the meetings are to be conducted. In addition, provisions for naming replacement trustees, or extending or amending powers of trustees, would not normally create a taxable event.