In the eyes of the Australian government, cryptocurrency is not actually a currency, but an asset, and decentralised doesn’t mean tax-free. As early as 2014, the Australian Tax Office (ATO) published guidelines on how cryptocurrency would be taxed.
Cryptocurrency tax laws in Australia have come a long way since 2014, and the ATO has become more sophisticated. The message is simple: Bitcoin may be legal, but withholding tax is not.
If you haven’t been declaring your income from crypto trades or investments, now’s the time to do so.
The Basics of Cryptocurrency Tax in Australia
For purposes of taxation, the ATO classes crypto users into three groups.
- Crypto traders carry out commercial trading activities (i.e., for a profit) in a regular, repetitive, and business-like manner. That means they keep proper records and invest a significant amount of capital.
- Crypto investors are those who follow a more long-term strategy of buy-and-hold as a personal investment.
- Personal use of cryptocurrency is an exemption made when you use crypto for transactions, just as you would with any other currency. That means when you’re purchasing goods and services for amounts not more than $10,000 in value.
You will find that crypto is treated a lot like stocks, with a few exceptions about what types of events will trigger a tax. It is important to note that all taxation is done based on the AUD value of the crypto assets at the time of a transaction.
Income Tax for Crypto Traders
If you fit into the description of a cryptocurrency trader as per the ATO guidelines, you will pay Income Tax as a business would. This also covers crypto mining, airdrops, lending interest, margin trading, and other special categories, so be sure to go through the ATO guidelines.
In this case, the profit generated from the gains you make will be subject to personal or business income tax.
Income Tax for Crypto Investors
As a crypto investor, you will be subject to Capital Gains Tax (CGT). There are several CGT events that trigger a tax:
- Trading and exchanging crypto, such as buying one crypto with another
- Converting crypto into fiat currency, such as AUD
- Using crypto to purchase goods/services, unless it falls under personal use.
- Selling or gifting crypto
- Special events such as blockchain forks that trigger airdrops
Cryptocurrency Capital Gains Tax in Australia is triggered only when a gain is made on the crypto assets. If the assets fall in value and their AUD value at the time of selling or gifting is less than their purchase price, that is a capital loss and is not subject to CGT.
A key point to remember is that holding crypto assets for a minimum of 12 months makes you eligible for a 50% CGT discount. Always be aware of capital gains discounts, capital gains losses, and other deductions to keep your tax obligations low.
Record-Keeping and Reporting
Whether your cryptocurrency trading activities qualify as trading or investment, both will be part of your annual income and be reported as required. For this purpose, you should keep careful records of each transaction with details on dates, AUD value of each transaction at that date, information about other parties involved, and the purpose of each transaction.
The income from either capital trading or investments will be subject to the rules of your tax bracket. At this point, refer to the advice of a professional or go through ATO guidelines carefully to aid in your calculations and reporting.
Conclusion
It is no longer news that the ATO has been working with popular coin exchanges and other crypto service providers to get information on crypto traders and investors. It is more prudent to take care of your cryptocurrency tax obligations because there will be no hiding when they come for you.