If you have traded or even used cryptocurrency over the last year, then you know that the Australian Tax Office (ATO) expects you to file returns and pay your crypto taxes.
In fact, the tax deadline is fast approaching and if you haven’t familiarised yourself with what the ATO says about the taxation of cryptocurrencies, now would be a good time to brush up.
Remember, the ATO classes cryptocurrencies as property and assets, which means they attract capital gains tax (CGT).
According to the tax agency, all capital gains and losses are accounted for as part of your income tax and thus must be reported on your income tax return. This includes cryptocurrencies. It’s not just profits that need reporting either – if you have made losses then you can use them to reduce your overall taxes.
Let’s dig deeper into the crypto tax laws of Australia.
How are cryptocurrencies taxed?
Any profits and losses made from cryptocurrency trading are taxed as capital gains unless you are trading as a business in which case different rules will apply.
Running a business? Prepare for income tax
Obtaining cryptocurrency or profits from crypto as part of your general business activity is treated as business income. So of course it will be subject to income tax. Some of the activities that fall under this category are:
- Commercial mining of cryptocurrencies
- Professional cryptocurrency trading
- Running/operating a crypto-related business such as an exchange platform
To determine whether your activities fall into this category, the ATO will assess its commercial viability and whether there are things like offices, business plans and inventories that identify it as a business.
You need to file a capital gains tax form when you sell/trade cryptocurrency, undertake crypto mining as a hobby or pay for goods/services with crypto. Unlike the US, Australians also trigger a CGT event when crypto is “gifted” to someone – unless its to a registered charity. There are also certain events that do not trigger any crypto taxes such as transferring coins between your own wallets, borrowing/lending cryptocurrency or simply HODLing.
How am I taxed if I sell goods or services for Bitcoin or other cryptocurrencies?
If you are accepting cryptocurrency as a mode of payment in your business, you should know that it is taxed in the same way as a regular payment as long as you are instantly converting the crypto to fiat – as is common with providers like BitPay, Coinbase etc. However, if you are not converting the cryptocurrency to fiat, you will be subject to additional capital gains taxes when you eventually decide to convert it. Any profits or losses at that point would be reportable as capital gains.
Unless you are speculating on crypto it is probably a wise move to use a payment provider that will convert the crypto to fiat right away to avoid additional reporting obligations, not to mention that the fees are usually very small for crypto payments and some providers have even waived them entirely. Compare that to the 2-3% your credit card provider charges!
Do I pay taxes if I use bitcoin to buy goods or services?
When you acquire bitcoin solely for personal use such as buying goods or accessing services, you are exempt from capital gains tax. On the other hand, if you acquire the asset as an investment or hold onto it for a period before using it to get goods, you will have to pay capital gains tax on the transaction.
The ATO clarifies that personal use includes buying crypto worth up to $10,000. But this must be directly used to buy other goods in the short term. Do not misunderstand this to mean that buying and holding crypto worth $10,000 and below isn’t going to be taxed!
Do I pay CGT on lost or stolen cryptocurrency?
If your cryptocurrency is hacked or you lose your private keys, then you have the option to file a capital loss claim. Bear in mind, though, that you will likely need to prove that the lost assets can’t be replaced (lost keys).
Either way, whether you lose crypto or prices plummet, you should make sure to file a tax return as you can reduce your overall taxes by offsetting gains made elsewhere with the crypto losses.
Crypto gained from airdrops and hard forks
According to the ATO, you do not trigger any CGT or income tax if you receive and hold cryptocurrency from a hard fork or airdrop.
Simply put, if you do nothing, then no tax obligation occurs on the forked coins. However, if you sell, trade, or gift these coins to someone, you will trigger a taxable event, for which the cost basis would be zero.
Another point to keep in mind is that if you HODL for at least a year, the ATO will give you a 50% tax rebate on capital gains! This is a pretty effective strategy to reduce your taxes.
Can I claim a crypto capital loss against my income tax?
No, you can’t. Basically, cryptos are classed as CGT assets, meaning that you only deal with capital gains or capital losses. That is, you only offset capital gains with capital losses. If you make a greater loss one financial year, you can roll it over into the next year and use that to offset future capital gains.
How do I determine my capital gain (or loss)?
If you have traded, sold or undertaken any crypto activity which amounts to a CGT event, then you will need to calculate your capital gain or loss. This is done by subtracting the purchase price from the selling price. Remember to subtract any fees related to the transactions too.
If you have completed a large number of trades you will need to use an accounting method like FIFO to determine the cost basis. This can be a time consuming process so you might want to look into using automated tax software to save yourself the time, headache and ben to reduce potential errors.
What records do I need to file crypto taxes?
The cryptocurrency space is a highly fluid market that can make record-keeping tricky, especially if you are a trader who undertakes numerous transactions per year. Here is what you will need to be doing throughout the year:
- Noting the dates for every one of your transactions
- Recording the market value of each asset at the time of purchase (in Australian dollars)
- Recording the type of transaction (fiat, crypto conversion) you have made
- Take down why you undertook the transaction (personal use or investment profit)
- Keep a record of fees paid on transactions
A simple tip to minimise tax for your business
You can do several things to minimise your crypto tax burden, including tax-loss harvesting and purchasing crypto for personal use. If you want to make a profit on your assets, while still paying discounted tax, then consider HODLing. Finally, if you are still feeling lost or just need more personal help – it is always a wise choice to consult a crypto tax accountant – they might be expensive but they can really pay off in the long run.
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