Cryptocurrency is no longer confined to the fringe of Australia’s investment community, many Australians have taken to investing in cryptocurrency with varying degrees of success, depending on when they bought in. While many Australians are sitting on material unrealised gains, many have also experienced a loss.
Understanding your tax obligations is important for three reasons:
- The gains you make on investing in cryptocurrency will generally be taxable, so it is important to understand how much tax you will need to pay and when.
- While there is some scope for gains not to be taxable, the circumstances are very limited. Tax accountants will tell you that any suggestion that you can easily structure out of paying tax is a myth.
- The ATO is watching and has been watching for the past 2 years. If you have purchased cryptocurrency the ATO is aware of it.
How you are taxed, depends on your purpose for acquiring cryptocurrency
The tax implications may be summarised as follows:
|Purpose of acquiring your cryptocurrency||Cryptocurrency held as||Tax implications|
|An investment||Capital asset||Convert purchases and sales into AUD and calculate the capital gain or loss. Gains made on cryptocurrency held for more than 12 months are subject to a 50% discount.|
|Part of a profit-making scheme||Revenue asset||Convert purchases and sales into AUD and calculate income gain or loss.|
|In course of carrying on a business||Revenue asset||Convert purchases and sales into AUD and calculate income gain or loss.|
Calibre Business Advisory’s team of leading tax accountants in Sydney is available to help you identify the tax implications of your involvement in cryptocurrency.
Cryptocurrency held as an investment
You hold cryptocurrency as an investment where you acquired the cryptocurrency with the intention of holding for the longer term.
The tax consequences of a disposal of cryptocurrency held as an investment are dealt with under Australia’s CGT rules.
Under the CGT rules, you will make a capital gain from the disposal of cryptocurrency if the capital proceeds from the disposal of the cryptocurrency are more than the cryptocurrency’s cost base. Conversely, a capital loss will result if the capital proceeds are less than the cost base.
The capital proceeds from the disposal of the cryptocurrency consist of the money or the market value of any other property received (or entitled to be received) by you in respect of the disposal.
The cost base of the cryptocurrency will consist of the money paid or the market value of any other property you gave in respect of acquiring the cryptocurrency.
Where you held the cryptocurrency for less than 12 months, the whole capital gain will be included in your assessable income in the year of disposal and taxed at your marginal tax rate (assuming you are an individual, 15% if you are a superannuation fund or 30% if you are a Company).
Where you have held the cryptocurrency for at least 12 months, any capital gain may be reduced by a 50% discount (if an individual, or 33% if held by a complying superannuation fund) is included in your assessable income.
Cryptocurrency held as part of profit-making scheme
You may be treated as have held cryptocurrency as part of a profit-making scheme if you are undertaking short term speculative investments with the intention of making a profit on disposal from the volatility in the value of cryptocurrency.
Profits made by speculators are likely to be treated as ordinary income, while losses may be tax-deductible (although further advice from tax accountants may need to be sought depending on the circumstances). Cryptocurrency held by speculators will not be trading stock and so will not be subject to the trading stock revaluation rules.
Cryptocurrency held in carrying on a business
You hold cryptocurrency in the course of carrying on a business if you are a Trader and buy and sell cryptocurrency regularly – akin to a share trader – incorporating a high level of investment (both time and money) and sophistication.
Any profits made by you as a trader is ordinary income and taxed at your tax marginal tax rate (assuming you are an individual, 15% if you are a superannuation fund or 30% if you are a Company).
Purchasing Private Goods and Services may not trigger income tax
When it comes to personal transactions you will not trigger an income tax liability if you only use cryptocurrency to pay for personal goods and services and always intended to do so.
In these circumstances, cryptocurrency can be considered to be a ‘personal use asset’, and exempt from CGT if the cryptocurrency has a value of less than $10,000
The exception has limited practical application and is generally confined to situations where you acquire cryptocurrency to make as specific purchase of personal goods. A common cited example is a person who acquired cryptocurrency on a regular basis to purchase and play computer games on a weekly basis. To confirm whether your behaviour falls under this category, speak with Calibre Business Advisory’s team of tax accountants.
The ATO is watching
The ATO has been monitoring cryptocurrency markets for over 2 years now.
In 2021, the ATO announced that it will acquire account identification and transaction data from cryptocurrency designated service providers for 2020-21 to 2022-23 inclusively.
The data items include:
- taxpayer identification details (names, addresses, date of birth, phone numbers, social media account and email addresses), and
- transaction details (bank account details, wallet addresses, transaction dates, transaction time, transaction type, deposits, withdrawals, transaction quantities and coin type).
The data will be used to match investors in cryptocurrency to ATO systems to identify taxpayers who failed to report a disposal of cryptocurrency in their income tax return. The ATO’s warning is very clear, if you don’t declare your cryptocurrency trades, we will contact you. For further information, contact Calibre Business Advisory’s experienced team of tax accountants in Sydney today.