Cryptocurrency and your Tax Return

The ATO considers Cryptocurrency investments as an asset for tax purposes. Transactions involving Cryptocurrency may be subject to Capital Gains Tax (CGT). If you dispose of any Cryptocurrency, you may be required to pay CGT on any capital gain. The ATO also requires you to keep accurate records of acquiring the Cryptocurrency and any other associated costs.

The ATO uses a combination of data matching, risk profiling, compliance activities, voluntary disclosure and education to track and identify businesses and individuals that are not reporting their Cryptocurrency transactions.

This article below will explain how Cryptocurrency is taxed.

 

When Cryptocurrency is Taxable

The most common use of Cryptocurrency is as an investment, in which case the Cryptocurrency asset is a capital gains tax (CGT) asset.

If you acquire a Cryptocurrency asset as an investment, transactions such as disposal or exchange or swap are a CGT event and you may make a:

·       capital gain

·       capital loss, which can reduce capital gains you make.

You can't deduct a net capital loss from your other income. You may be able to reduce capital gains using the CGT discount if you hold your Cryptocurrency asset for at least 12 months.

In general, a CGT event happens when you dispose of a CGT asset. For the purposes of Cryptocurrency assets, that may be when you:

  • sell a Cryptocurrency asset

  • gift a Cryptocurrency asset

  • trade, exchange or swap one Cryptocurrency asset for another

  • convert a Cryptocurrency asset to Australian or foreign currency

  • buy goods or services with a Cryptocurrency asset.

  • transfer between Cryptocurrency wallets

Before you calculate CGT on your Cryptocurrency assets, you will need to:

You need to keep details for each Cryptocurrency asset as they are separate CGT assets.

 

Are you a trader?

The ATO may consider you to be a cryptocurrency trader.

An important question to ask is whether you have set up a business with the intention of generating profit from buying and selling cryptocurrency. In this instance, disposals of cryptocurrency are considered business income and are taxable at marginal income tax rates, rather than being eligible for capital gains treatment as discussed above.

There are certain factors that will lead to a determine that you are a trader or business, these include:

·       Having an intention to make a profit by regularly trading rather than holding the asset

·       Conducting your activity in a commercially viable way, this can included how regularly you are buying and selling.

·       Operating in a planned, organized and business-like manner, including keeping business records, creating a business plan, and acquiring inventory or assets in line with your plan, as an example computer equipment for mining purposes

Having a large volume of transactions, a high level of activity or a degree of sophistication does not automatically classify you as a business engaged in cryptocurrency transactions. One of the tax and crypto specialists at Salt can help you evaluate your transactions against the criteria set by the Australian Taxation Office (ATO) to determine if you are carrying on a business.

Some additional information to note is that if you’re in the process of setting up or preparing to start a business, you’ll need to be aware that money or property received before the business officially starts is not generally considered assessable income. Expenses incurred before the business has officially begun cannot be claimed as deductions.

When Cryptocurrency is Non-Taxable

A Cryptocurrency asset is a personal use asset if you keep or use it mainly for personal use. The most common situation of personal use of Cryptocurrency assets is to buy items for personal use or consumption.

The relevant time for determining if a Cryptocurrency asset is a personal use asset is when you dispose of it:

  • A Cryptocurrency asset you acquire and use in a short period of time to buy items for personal use or consumption is more likely to be a personal use asset.

  • A Cryptocurrency asset you acquire and hold for some time before you use it, or only use a small proportion of it, to buy items for personal use or consumption is less likely to be a personal use asset.

A capital gain on the disposal of a Cryptocurrency asset is disregarded if both:

  • it is a personal use asset

  • you acquired it for less than $10,000.

A capital gain on a personal use asset is not disregarded if it cost you more than $10,000 to acquire the asset.

The ATO are reporting where they are aware of cryptocurrency ownership on tax payers pre fill report. This report identifies all of the income the ATO have records on and are expecting to see on your tax return.

If you are unsure of how you will be taxed on your cryptocurrency please come and speak to one of the cryptocurrency tax experts at Salt Financial Group.

Jenni Anderson