Ownership of cryptocurrency has been on the increase in Australia for a number of years now. But many people are confused about what impact this has from a tax perspective. The tax implications of digital currencies can be complex so we’re going to take a look at crypto tax in Australia if you’re an investor, not a trader. If you’ve considered investing in it, we’ll also explore under what circumstances Capital Gains Tax (CGT) is payable along with other potential tax consequences of owning cryptocurrency. Do you have to pay tax on cryptocurrency in Australia? Let’s take a look…
What Is Cryptocurrency?
Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. It operates on a technology called blockchain, which is a decentralised and distributed ledger that records all transactions across a network of computers. Unlike traditional currencies issued by governments (such as the Australian Dollar), cryptocurrencies are typically not controlled by any central authority, like a central bank. Bitcoin, Ethereum, and Ripple are some well-known examples of cryptocurrencies.
In Australia, cryptocurrency regulation has evolved over the years, and it’s important to note that regulations can change, so it’s essential to stay updated with the latest developments.
How Is Crypto Taxed In Australia?
The Australian Taxation Office (ATO) treats cryptocurrency as property for tax purposes. This means that individuals and businesses are required to pay capital gains tax on cryptocurrency transactions, depending on the profits they make.
When you sell a cryptocurrency asset you need to work out whether you made a capital gain (i.e. you made a profit) or a capital loss (i.e. you lost money) to determine how much capital gains tax (CGT) you’re required to pay. You need to report your gains and losses in your Income Tax Return and pay income tax on net gains.
Crypto disposal is considered a ‘CGT Event’ by the ATO however ‘disposal’ doesn’t simply mean sale of your cryptocurrency. It also includes:
- gifting a crypto asset
- trading, exchanging or swapping one crypto asset for another
- converting a crypto asset to Australian or foreign currency
- buying goods or services with a crypto asset.
Cryptocurrency transactions are also subject to goods and services tax (GST) in some cases.
If you receive cryptocurrency as payment for goods or services, it’s considered part of your taxable income and should be declared on your tax return at its Australian dollar value at the time you receive it.
Crypto-to-crypto trades are also taxable events. It’s important to understand that when you trade one cryptocurrency for another, it is considered a disposal for tax purposes, and any capital gain or loss needs to be reported.
Mining cryptocurrency is also considered a taxable activity, and the mined coins are subject to taxation.
However, the ATO views cryptocurrency used for personal use (e.g. buying a product), sometimes referred to as Personal Use Assets differently than cryptocurrency kept as an investment. These distinctions can greatly affect tax obligations. We cover this in more detail below.
Can The ATO Track Crypto Trades or Exchanges?
The ATO now has sophisticated data matching techniques in place for Cryptocurrency trades or exchanges. It’s likely that they already have your information if you have an account with an Australian Designated Service Provider (DSP) as they have access to the Know Your Customer information supplied when you signed up for an Australian exchange or wallet.
In addition, the ATO has specific guidance and tools for cryptocurrency tax reporting, including the use of cryptocurrency tax software.
It’s vital to understand that attempting to avoid or evade cryptocurrency taxes in Australia is illegal and can lead to penalties and fines.
How To Avoid Tax On Cryptocurrency in Australia
It’s important to recognise that you cannot avoid paying tax on crypto currency in Australia however there are some measures that you can take to reduce the tax payable. You have to declare crypto in your tax return if you have sold, traded or earned it in the past financial year.
However, one of the ways to potentially reduce your CGT tax liability is to hold on to your investments for more than 12 months before selling. You may then be eligible for a 50% discount on the CGT tax payable.
In addition there is the Personal Use Asset exemption. Cryptocurrency is considered a personal use asset if you keep or use it mainly for personal use and it was purchased for less than $10,000. The most common situation of personal use of crypto assets is to buy items for personal use or consumption. If the crypto is considered a personal use asset, a capital gain / loss can be avoided.
One of the key considerations for determining whether your cryptocurrency is a personal use asset is the length of time you keep hold of it before using it to buy something. The longer you keep hold of it, the less likely it is to be considered a personal use asset. While the guidance is a little vague, some examples provided by the ATO indicate that if transactions take place within a 2 week period then they may be considered as personal use assets.
However, crypto assets are not personal use assets when you keep or use them:
- as an investment
- in a profit-making scheme
- in carrying on a business.
Finally, donating crypto to a registered charity is also one of the few times that it is not taxable.
Can You Claim Crypto Losses on Taxes In Australia?
You can claim capital losses on cryptocurrency investments to offset capital gains. If you sell cryptocurrency at a loss, you can use this loss to reduce your overall tax liability. Capital losses can’t, however, be used to offset income.
It’s fair to say that crypto tax in Australia is complex. That’s why it pays to get advice from accounting experts. It’s crucial to maintain accurate records of all your cryptocurrency transactions, including purchase/sale dates, amounts, and the parties involved. This information is necessary for tax reporting. It’s advisable to report all cryptocurrency transactions accurately and seek professional tax advice to ensure compliance with tax laws.