Is cryptocurrency taxed in Australia? Yes. The ATO cryptocurrency rules make it clear how cryptocurrency is taxed. In Australia, Bitcoin and other cryptocurrencies are subject to Capital Gains Tax and Income Tax. In this crypto tax guide, we break down everything you need to know about crypto taxes in Australia. You will keep informed about cryptocurrency tax rules, crypto capital gains tax, crypto income tax, how to avoid cryptocurrency tax in Australia, and how crypto tax software can help you simplify bitcoin tax.
We closely follow the ATO’s crypto regulations and update this advice regularly to keep you informed and tax-compliant.
Cryptocurrency is taxed in Australia.
Do you pay cryptocurrency taxes? Yes. Bitcoin is considered an asset subject to Capital Gains Tax and Income Tax in Australia. You should understand the tax implications of owning cryptocurrency. If you acquired, sold, or earned interest on cryptocurrencies in the previous fiscal year, you must report your crypto totals on your Income Tax Return.
Will the ATO know about your crypto?
Yes. If you have an account with an Australian crypto-designated service provider (DSP), the ATO most certainly already has your information.
All Australian exchanges participate in the ATO’s data-sharing scheme.
The ATO now has cryptocurrency transaction data dating back to 2014.
The ATO has your Know Your Customer (KYC) information from when you signed up for any Australian exchange or wallet.
Hundreds of thousands of Australian crypto investors received letters from the ATO in 2020 and 2021, advising that crypto was indeed taxable and that failure to disclose led to penalties for tax evasion. The receivers of the 2021 nudge letter were given 28 days to report their crypto trades.
How Australia taxes cryptocurrency?
The Australian government does not consider Bitcoin or other cryptocurrencies money or foreign currency. Instead, the ATO considers cryptocurrency property – an asset for Capital Gains Tax (CGT) purposes. Cryptocurrency can potentially be taxed as Income Tax. How you get taxed is determined by your ‘intentions’ and setup.
Investor or Trader?
Investor or Trader? Crypto Tax in Australia. Image: Koinly
According to the ATO, individual investors and taxpayers who earn a regular income from trading are subject to different tax laws.
Similarly, the ATO classifies cryptocurrency users as traders or investors for tax reasons. The lines might get a little hazy. More ATO guidance can be found here, but in general, the following is a good starting point:
- Investor: An investor is just someone investing in a future return. An investor buys and sells cryptocurrency as personal investment stock to progressively grow wealth over time through long-term financial gains. Most Australian cryptocurrency users fall within this group, and any gains made are liable to Capital Gains Tax. Income Tax can also apply in some situations, depending on how the cryptocurrency was purchased.
- Trader: A trader uses cryptocurrency to earn money and operates from a company setup. The ATO will tax you as a trader if you run a crypto trading, forging, or mining firm, habitually purchase and sell for short-term gains, or manage a crypto exchange. The profits are taxed as income.
Traders are not eligible for the 50% Capital Gains Tax Discount, although investors are.
Capital Gains Tax
When you sell your bitcoin, you trigger a Capital Gains Tax (CGT) event. To dispose is to sell, gift, trade, exchange, convert, or utilise cryptocurrency to purchase goods. Importantly, when you hold crypto for a year before selling, you will pay 50% less tax on your earnings.
In Australia, there are four ways to pay capital gains tax on cryptocurrency:
- Sell crypto for fiat
- Swap cryptocurrency for cryptocurrency, including stablecoins.
- Spend cryptocurrency on products and services (if not seen as a personal use asset)
- Give crypto as a gift
Capital Gains Tax Rate
If you acquire cryptocurrency as an individual (investor), your Capital Gains Tax rate will be the same as your income tax rate. Your total income determines your tax rate throughout the tax year.
ATO Individual Income Tax Rates 2021–222*
| Income | Tax Rate |
| $0 – $18,200 | 0% |
| $18,201 – $45,000 | Nil + 19% of excess over 18,200 |
| $45,001 – $120,000 | $5,092 + 32.5% of excess over 45,000 |
| $120,001 – $180,000 | $29,467 + 37% of excess over 120,000 |
| $180,001+ | $51,667 + 45% of excess over $180,000 |
Source: ATO. * The above rates do not include the Medicare levy of 2%.
How to calculate your Capital Gains Tax
A capital gain in crypto is the same as in any other asset type, such as a stock. The gain is the difference in value between when you received your cryptocurrency and when you sold it. You’ll generate a capital gain if the revenues from the sale exceed the whole cost of the asset, known as the cost basis.
Calculate cost basis. Image: Koinly
The ATO gives the following instructions for calculating and reporting your crypto capital gains: you must first determine your cost base to know how much you gained or lost. This is the purchase price of your cryptocurrency plus any fees associated with obtaining or disposing of it, such as transfer fees.
If you dispose your cryptocurrencies and earn a capital gain, you must pay tax on some or all of that gain.
EXAMPLE
Craig purchased 1 ETH in January for $1,000 plus a charge of $100. His cost base is $1,100. The same year, he sold his 1 ETH for $2,000 plus a $100 charge.
His capital gain is $2,000 less the cost base of $1,100 and the additional charge of $100, which is a total profit of $800. Craig’s $800 gain will be taxed as Capital Gains Tax at his Income Tax rate. Craig could cut his Capital Gains Tax in half if he waited a year to sell – he’d pay only half of $800 using the Capital Gains Discount.
Crypto tax breaks
Australian taxpayers are given some breathing space thanks to various tax-free levels and concessions that apply to bitcoin tax as well.
1. Tax-free threshold: You will begin to pay income tax when your total annual income exceeds $18,200.
2. Capital Gains Tax (CGT) Discount: If you hold your cryptocurrency for more than a year before selling or trading it, you can be eligible for a 50% CGT discount. Even if your crypto’s market value fluctuates, you will not incur a capital gain or loss until you sell your holdings.
3. Personal use asset: If you own cryptocurrencies as a personal use asset, you can be free from capital gains tax. You are qualified for this exemption if you acquire no more than AU$10000 of cryptocurrencies in a short period to buy anything else using cryptocurrency directly.
It is unlikely that the crypto is a personal use asset if it is obtained and held for some time before such transactions are performed or if just a small percentage of the crypto is utilised to make such transactions.
When you exchange the cryptocurrency for Austrian dollars or another cryptocurrency to purchase items for personal consumption, or when you use a payment gateway or other payment intermediary to acquire the items on your behalf, a cryptocurrency is unlikely to be a personal use asset (as opposed to using crypto directly).
The time of disposal of the cryptocurrency is critical in determining whether it is a personal use asset. The longer you hold the cryptocurrency, the less likely it is to be a personal use asset – even if you eventually use it to purchase products for personal use. This is because you have most likely profited from a growth in the value of the cryptocurrency throughout the holding period.
Therefore, it’s advisable to use this clause with caution. If the ATO examines you, the burden of evidence is on you to demonstrate that the cryptocurrency was, in fact, a personal use asset. Furthermore, any capital losses on personal use assets cannot be written off against capital gains at any time.
Tax on crypto capital losses
If the revenues from the sale of your cryptocurrency are less than what you paid for it initially, you will incur a loss. If you have a net capital loss, you can subtract it from any other type of asset gain and even carry the loss over to future years.
Losses on crypto, stock, and property investments can offset gains. A net capital loss, on the other hand, cannot be deducted from your other income.
Tax on lost or stolen crypto?
If your private key is lost or stolen, you can be entitled to claim a capital loss.
To claim a Capital Loss, you must provide the ATO with proof such as:
- The wallet address to which the key belongs
- When you obtained the key and when it was lost
- The expense of recovering a stolen or lost cryptocurrency
- The fact that you were in control of the wallet
- The amount of bitcoin you had when you lost the key
- That you own the hardware where the wallet is stored
- Transactions to your wallet from an exchange related to your identification
Income Tax
There are instances where cryptocurrency is viewed as income and subject to Income Tax, particularly if the ATO perceives you as a trader rather than an investment.
As an investor, you’re often concerned with capital gains. You can earn money with cryptocurrency in various ways, but it’s easy to start ‘acting’ like a trader, so proceed with caution.
Three approaches to acquiring cryptocurrency that make sense from a ‘labour’ standpoint are as follows:
- Having your salary paid in cryptocurrency
- Selling NFTs as an artist, dealer, or gallery (but this would become business income)
- Earn money as a validator by using Proof of Stake.
If you are found to be obtaining new mining tokens as a hobby miner rather than a business enterprise, you are taxed differently.
There are also “engage-to-earn” services that pay out cryptocurrency depending on user behaviour:
- Receiving Airdrops.
- Referral rewards such as CoinSpot Referral.
- Watch to earn platforms.
- Learn to earn campaigns.
- Play to earn games.
- Browse to earn platforms
- Share public address to earn.
- Shop to earn via browser extensions.
DeFi, or decentralised finance, has created many chances for cryptocurrency holders to earn additional cryptocurrency.
- Using yield farming to earn interest on loan protocols such as AAVE, and Compound.
- Using Uniswap-like systems to earn new liquidity pool tokens, governance tokens, or incentive tokens.
- Lending your bitcoin to services like NEXO to earn interest.
- Reach bitcoin payouts on sites such as CoinRabbit to earn profit.
Tax-free crypto transactions
In Australia, certain crypto activities are tax-free. However, other regulations are obvious, such as not having to pay tax while purchasing or retaining cryptocurrency. Other ostensibly tax-free transactions can swiftly muddy the lines, particularly DeFi transactions or crossing the barrier from ‘investor’ to ‘trader’.
Broadly, here’s when you won’t pay tax on crypto in Australia:
- Holding crypto.
- Buying crypto.
- Acquiring crypto as a gift or from hobby-level crypto mining.
- Transferring crypto between your wallets.
- Purchasing goods and services under $10,000, if it’s a personal use asset.
- Donating crypto to registered charities.
Tax on buying crypto
Do you have to pay tax in Australia if you buy cryptocurrency? The answer is it all depends on how you pay.
Buy cryptocurrency with fiat
When you buy bitcoin in Australia, you are not taxed. Cryptocurrency is also GST-free.
However, keeping correct records of your purchases is critical so that you can determine the cost basis of the transaction when you sell or ‘dispose’ of your cryptocurrency – since this is when you have to pay tax.
Buy and HODL
If your strategy is to just acquire and keep your cryptocurrencies, you will not have to pay tax on the cryptocurrency you have, even if the value of your portfolio rises. When you sell, swap, or donate your cryptocurrency, this is a taxable event.
Buy crypto with crypto
In Australia, buying, swapping, or trading one cryptocurrency for another (for example, BTC XRP) is a taxable event. The ATO views trade as two distinct transactions: first, you sell your BTC for X number of fictitious dollars, and then you acquire ETH with these fictitious dollars.
Even if you never got any cash, you must still pay taxes on the sale of the BTC.
The capital gain is calculated based on the market value (in AUD) of the purchased coins. If the cryptocurrency you received cannot be evaluated, you must consider the market value of the cryptocurrency you sold at the time of the transaction.
A stablecoin, such as Dai and TrueUSD, is a type of cryptocurrency that provides price stability. Stablecoins are backed by a reserve asset, which is often a stable fiat currency such as USD or AUD. However, in the eyes of the ATO, stablecoins such as TrueUSD are the same as any other cryptocurrency, and hence the tax treatment – Capital Gains Tax – is the same as for regular cryptocurrencies.
Example
Let’s say you paid $1,000 for 1 BTC in July 2017.
You exchanged 0.5 BTC for 3 ETH in November 2017 when the market value of 3 ETH is roughly $2,000.
This means your capital profits are $2,000 and your purchase cost is $500. To put it another way, your capital gain would be $1,500.
Tax on selling crypto
If you’re investing in cryptocurrency, you’ll eventually want – or need – to cash out. How does the ATO snare you at this critical juncture? It all depends on your patience.
Selling crypto for fiat
Selling crypto for fiat currency, like the Australian dollar, is a taxable event, according to the ATO. Profit from the selling of bitcoin is subject to a capital gains tax of 100% in the first year and 50% in subsequent years.
EXAMPLE
Craig acquired 0.1 BTC for $1,000 in July 2017 and sold it for $2,000 in November 2017. Thus, his total capital gain is $1,000.
Selling crypto for crypto
Selling, trading or swapping one cryptocurrency for another, like purchasing crypto with crypto, is a taxable event, and Capital Gains Tax applies.
This also applies to stablecoins. Selling a currency like ETH for a stablecoin like Dai is viewed as disposal, just like selling ETH for BTC is.
Moving crypto between wallets, exchanges and pools
The ATO has stated that transferring cryptocurrency between your own wallets is not considered a disposal, and you do not need to record it or pay Capital Gains Tax. However, nothing is that simple in the realm of cryptocurrency, and activities such as adding and withdrawing liquidity can become more complicated from a tax standpoint.
Moving crypto between wallets
Moving cryptocurrency between wallets is not a taxable event and does not generate Capital Gains Tax.
However, it is critical to maintain track of these moves since automated crypto tax software analyses them to compute the cost basis of each trade.
EXAMPLE
Let’s say Sam purchases 4LTC on CoinSpot for AU$1000. She eventually transfers the funds to her own LTC wallet. She then transfers the LTC from her wallet to her Binance account and sells it for $2,000, generating a $1,000 profit.
Sam will need to link all three wallets to create her crypto tax report. If she does not sync her private wallet but merely the CoinSpot and Binance accounts, it’s impossible to determine whether the funds moved into her Binance account are the same funds she acquired on CoinSpot.
However, if Sam enters her private wallet address, the transfer will be tracked from CoinSpot to her wallet, and from her wallet to Binance. This will aid in the creation of an accurate tax report.
If she loses access to her private wallet, she will have to make certain adjustments manually. She must label the CoinSpot transfer as ignored so that she does not have to pay taxes twice. She would then adjust the value of the incoming Binance transaction to meet the cost-basis of the existing CoinSpot transaction.
Transfer fees
Transferring your own cryptocurrency across wallets? Undoubtedly, you will incur a network transfer price to do so. If you are paying in fiat money, this transaction is tax-free. However, you will more often than not pay for this transfer cost in bitcoin.
If you pay this charge with bitcoin, you are technically expending the asset, which is considered a disposal. This event is taxed. Thus, although transactions are tax-free, transfer fees paid in cryptocurrencies are not. You must determine your cost basis and gain or loss on capital.
The ATO has adopted an official view on this matter: Capital Gains Tax is triggered if the transfer fee was paid in cryptocurrency. You must calculate the capital gain or loss for the percentage of your cryptocurrency utilised to cover the transfer charge. The cost basis is the fee amount’s worth at the moment it was paid. The ATO provides further information on this topic here and here.
EXAMPLE
You purchased 1 ETH. When you purchased 1 ETH, its cost was $4,385.
You have decided to transfer ETH from your Binance wallet to your MetaMask wallet. There is a set price of 0.005 ETH for this service.
Since you are paying in ETH, you are exchanging your cryptocurrency. You must determine the cost basis and fair market value of your cryptocurrency at the time of disposal. Let’s assume that the price of ETH has not changed since you purchased it.
0.005 ETH = $21.90. This is your disposal, and you must disclose it to the ATO even if there is no financial gain or loss.
Adding and removing liquidity
On the surface, increasing or withdrawing liquidity from different DeFi protocols does not seem to be a taxable event. These transactions resemble more of a transfer than the sale of cryptocurrency.
However, if you get a token in return for your liquidity pool stake, this might be considered a crypto-to-crypto trade liable to Capital Gains Tax. Each DeFi protocol operates somewhat differently; thus, you should consult with an expert crypto accountant to verify tax compliance.
How are airdrops and forks taxed in Australia?
Are you subject to crypto taxes on the additional assets you get from airdrops and forks? Will it be considered income and taxed as such? Are airdrops and forks exempt from tax?
Receiving an airdrop
The ATO has indicated that any airdrops received are taxable as ordinary income at the tokens’ fair market value on receipt. Airdrops are treated similarly to bonuses.
The monetary value of an established token acquired by an airdrop equals the recipient’s regular income at the time of acquisition. This applies to both voluntary and participant airdrops.
To determine the amount of Income Tax you must pay, calculate the fair market value of the airdropped cryptocurrency when you get it and multiply it by your income tax rate. Typically, the cost basis here is $0.
EXAMPLE
A token airdrop gives you 300 1INCH tokens. On the day you get them, each token has a value of $3.5. As your tokens are subject to Income Tax, you must determine their entire value.
$3.5 x 300 = $1,050. You report $1,050 in income on the Individual Tax Return Form.
Trading or selling Airdropped coins
If you sell, exchange, spend or give away your airdropped coins or tokens, the transaction is recognised as a standard capital gains event.
The cost basis is the value of the coins at the time of their first airdrop distribution.
EXAMPLE
A few days later, you sell the 300 air dropped 1INCH tokens you received. The fair market value of each token is $4; thus, you earn $1,200. The previous calculation might serve as your cost basis.
$1,200 – $1,050 = $150. You declare a capital gain of $150 on your Tax Return Form.
Receiving fork assets
The ATO has two regulations regarding hard forks, depending on whether you are an investor or a bitcoin company operator. If you fall into the latter case, you must comply with trading stock tax rules, not cryptocurrency tax rules.
If you are an investor, you will not be required to pay Income Tax on any new coins you get after a hard fork. Zero is the cost basis for new cryptocurrencies created via a hard fork.
Selling fork assets
The ATO makes it quite clear that the cost basis for new cryptocurrencies resulting from a hard fork is zero, thus you will be required to pay Capital Gains Tax on the total value of your currency since it is all considered profit.
One approach to minimise these taxes is to HODL your assets. Australian investors who hold assets for more than a year are eligible for a 50% long-term Capital Gains Tax reduction when selling, exchanging, spending, or gifting such assets. This reduction would apply to coins obtained via a fork, as well as any other crypto asset held for over a year.
EXAMPLE
You got 1 BCH in 2017 as a result of the BTC fork. Your purchase price for this new currency is $0. You sell it a few months later for $2,000 at its highest value. Because your cost basis is zero, the whole $2,000 profit is liable to Capital Gains Tax by the ATO.
Token address change / mainnet launch
When a cryptocurrency changes its underlying technology – such as when EOS moved from the ETH blockchain to the EOS mainnet or DAI changed its contract address and renamed the previous coin SAI – there are no tax implications.
If your old coins continue to have value after the new ones have been released, the ATO can interpret this as a fork and not a swap, which might trigger a Capital Gains Tax event.
Crypto Gifts and Donations Tax
Donations and gifts are common tax minimisation tools, but would they work in Australia for crypto tax? Here is what the ATO has to say concerning the taxation of bitcoin gifts and donations.
Giving a crypto gift
This will cause discomfort. Whether your motivation for donating bitcoin is altruistic or opportunistic, the ATO does not care and will gladly request that you pay Capital Gains Tax on the disposal.
Receiving crypto as a gift
If you get cryptocurrency as a present, consider yourself fortunate for two reasons. You have just acquired some cryptocurrency without having to pay tax.
Receiving cryptocurrency as a gift is not taxed. However, you must maintain track of the cryptocurrency’s fair market value when you acquire it. This will be your cost basis, and you’ll need it to calculate a possible gain or loss if you decide to sell or even re-gift the cryptocurrency.
Selling your crypto gift
While receiving a crypto gift is tax-free, its disposal – whether by selling, exchanging, spending, or re-gifting – is subject to Capital Gains Tax.
Your cost basis will be the coins’ fair market value when you get them.
Donating crypto
In Australia, crypto donations are tax deductible if they are sent to a registered charity, much as traditional donations.
On your tax return, you can deduct the donated amount, which is equal to the dollar value of the cryptocurrency at the donation time.
Tax on mining crypto
Is bitcoin mining taxed in Australia? The ATO will tax your mining activity based on whether you are a trader or a hobby bitcoin miner. The lines can get blurry, so it’s best to check the ATO’s website to assess if you are mining cryptocurrency as a company.
Mining as a hobby
A hobby miner is an individual who engages in cryptocurrency mining as a hobby or pleasure, not to make a profit. Their investment in mining technology will be negligible – a small-scale operation at home – and they want to accumulate the rewarded coins instead of selling them immediately for a profit.
The coins received are not income but a capital acquisition.
When sold, the mined coins will be liable to capital gains tax. No expense deductions are feasible. It is also essential to recall that personal use asset exemption laws do not apply to the capital gains from the sale of mined cryptocurrencies.
Mining as a business
A commercial miner is an individual who does mining on a huge scale for profit. If you have made substantial equipment investments and are working out of a specialised place such as a data centre, then you are in the mining industry. You can also be in the mining business if you regularly sell them for a quick profit instead of amassing the rewarded coins.
You must report as ordinary income any proceeds you get from a mining pool/service or your mining rig on your Income Tax return.
Check out the ATO’s website to establish whether or not you are mining cryptocurrency as a business or a hobby.
Selling mined coins
When you ultimately sell your mined coins, you will continue to owe capital gains tax on the difference between the amount you claimed as income and the value at the time of sale.
Crypto margin trading, futures and other CFDs
The tax for crypto trading, such as futures trading, margin trading, and other CFDs, is quite complex, so let’s break down the tax for crypto trading.
Margin trading, futures and derivatives
Margin trading with cryptocurrencies entails borrowing cash from exchange to execute transactions and then repaying the loan. Typically, interest payments are also required.
The ATO does not yet give clear advice on which taxes apply to margin trading in cryptocurrencies, futures, options, and other derivatives. A frequent cautious approach for investors is to report any profits or losses from these transactions as capital gains or losses, just as they would for spot trading. In this instance, CGT applies.
While there is no current advice on how this is taxed, it is crucial to remember that there is a significant distinction between margin trading and futures trading, therefore the regulations governing futures trading/speculation can not apply to margin trading.
During futures trading, you speculate on the rise and fall of a coin.
During margin trading, you borrow funds to conduct specific trades.
Binance, for example, permits margin trading on spot markets, but if you also like to trade futures, you must use an entirely new platform – Binance Futures.
In light of this, the prudent course of action is to regard borrowed funds as your own assets and pay CGT on the return of the loan if the loan interest is levied in cryptocurrencies (since this would be deemed a disposal).
Futures / contracts / options trading with crypto
Futures trading does not include the actual purchase or sale of cryptocurrency. Instead, you speculate on whether the price of a crypto asset will grow or decline in the future. When the future comes, you will either gain or lose money.
There is no advice from the ATO on how this profit or loss should be taxed.
DeFi crypto taxes Australia
DeFi is still in its infancy and is in a perpetual state of evolution, providing investors with prospects to earn money. The IRS has not yet released clear advice about the tax treatment of individual DeFi transactions.
Don’t leap with joy just yet. This does not imply you will not pay taxes on DeFi transactions. Instead, investors must examine the present guidelines on crypto transactions and extrapolate the expected tax on their DeFi transactions.
DeFi, or decentralised finance, has created a plethora of chances for cryptocurrency holders to earn additional cryptocurrency.
Therefore, you will continue to pay no tax, Income Tax, or Capital Gains Tax on your DeFi transactions.
The tax you must pay depends on whether you are considered to be ‘earning’ or ‘selling’ cryptocurrency. Remember that cryptocurrency earnings occur whenever you get new coins or tokens as a consequence of your transactions. This would include several DeFi transactions. In the meanwhile, the exchange, sale, or expenditure of tokens on DeFi platforms would be subject to Capital Gains Tax.
In conclusion, we can deduce that DeFi’s tax treatment would likely be comprised of the following tax treatments:
- Interest earned via DeFi protocols: Income tax
- Borrowing from DeFi protocols: No tax.
- Paying interest in DeFi protocols: No tax if you’re not paying in crypto, otherwise CGT.
- Selling or swapping NFTs: CGT.
- Buying NFTs: No tax.
- Staking on DeFi protocols: Income Tax.
- Yield farming DeFi protocols: Income Tax.
- Earning liquidity tokens from DeFi protocols: CGT or Income Tax, depending on whether you’re getting new coins or raising the asset’s value.
- Adding liquidity to liquidity pools: No tax or Capital Gains Tax, depending on whether you receive a token in exchange for your liquidity.
- Removing liquidity from liquidity pools: No tax or CGT depending on whether you exchange a token to remove your liquidity.
- Earning from DeFi margin trading: CGT.
- Earning through engage/play to earn DeFi protocols: Income Tax.
To be compliant, we suggest consulting with an expert crypto accountant for advice on DeFi tax.
Earning from DeFi protocols
Interest from DeFi / Lending / Staking / Masternodes?
Whenever you are seen to be ‘earning’ new coins or tokens from DeFi, the ATO will likely consider this as extra income, and you will be required to pay Income Tax based on the asset’s fair market value in Australian dollars on the day you got it.
Selling or swapping coins on DeFi protocols
Whenever you sell or exchange a coin or token over a DeFi network, this is likely to be considered a taxable disposition subject to CGT. You must pay tax on any profits generated by disposal.
Participating in an ICO/IEO
Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs) refer to situations in which investors can acquire tokens/coins for an unreleased cryptocurrency/company. This transaction often takes place using an established cryptocurrency, such as Bitcoin or Ethereum.
From the standpoint of the ATO, this is a crypto-to-crypto exchange. The taxable event occurs when you get the new tokens on the day of the ICO transaction. When you sell the new tokens in the future, the cost basis will be the value of the cryptocurrency you paid for them on the day of the ICO or IEO.
Signup & Referral bonuses
Any cryptocurrency you get for joining up for a service or referring users is taxed as income. Referral bonuses are comparable to commissions.
Getting paid in Bitcoins
Whether you are a freelancer or an employee of a company that pays you in cryptocurrency, you cannot avoid paying income tax.
Coins received as income are taxed at their fair market value at the time of receipt; thus, you must include this income on your yearly tax return or risk facing the taxman.
Spending crypto
Paying for products or services not intended for personal use, priced above AUD$10,000, or paid for using long-held cryptocurrency.
Cryptocurrency can fall under the Personal Use Asset criterion, but only under extremely stringent conditions.
Assets disposed of for the purchase of non-business personal property valued at less than $10,000 are exempt from capital gains tax if:
1. The item value exceeds AUD $10,000, or
2. Goods are purchased for business use, or as an investment (so not for personal use).
3. Purchases are made using cryptocurrencies stored for an extended length of time and/or originally acquired for investment reasons. The ATO states that the longer you retain a cryptocurrency, the less likely it is to be an asset held for personal use.
EXAMPLE
Since nearly six months ago, Jasmine has consistently held cryptocurrencies to sell at a favourable exchange rate. She has chosen to use part of her cryptocurrencies to buy new furniture. Because Jasmine first utilised bitcoin as an investment, the cryptocurrency and its disposal are not assets for personal use.
Paying for personal stuff less than AUD $10,000
While most assets in Australia are subject to capital gains tax, things purchased for personal use, such as clothing, are classified as personal use assets. Personal use assets do not incur capital gains tax. How does this exemption for personal use assets apply to purchases made with cryptocurrencies?
Ordinarily, when you pay with cryptocurrency, this is considered a ‘disposal,’ which is subject to CGT. However, CGT can not apply to crypto-purchased items when:
1. The item is purchased for personal use (not for business, nor as an investment.) Examples: clothing, plane tickets, etc.
2. The cryptocurrency used for payment is obtained and used within a short time.
3. The price of the item purchased is less than $10,000 AUD.
EXAMPLE
Steve needs a new hoodie. His favourite retailer gives discounts for bitcoin transactions. On the same day, Steve spends $120 to buy bitcoin and uses the cryptocurrency to purchase a hoodie. Under the conditions under which Steve purchased and used the cryptocurrency, it is a personal-use asset and is exempt from capital gains tax.
Spending crypto as a business
If you are a trader who holds cryptocurrency for sale or exchange in the usual course of business, the trading stock rules apply, not the CGT regulations. This implies that the cryptocurrency you purchase and sell is considered stock – as in stock count.
Ordinary income is the profit from a firm’s sale of cryptocurrencies as trading stock. The cost of purchasing bitcoin held as trading stock is deductible as a company tax deduction.
Businesses using cryptocurrencies include crypto trading companies, crypto mining companies, and crypto exchange companies (including ATMs).
EXAMPLE
Jake operates a cryptocurrency trading firm. On November 15, 2017, he paid $150,000 for 1,500 bitcoin. He sells 1,000 bitcoins for $200,000 the same day. As Jake retains the cryptocurrency for sale or exchange in the regular course of his company, he can deduct $150,000 for the purchase of his bitcoin and report $200,000 in income on its subsequent sale.
How to report your crypto tax activity?
The ATO requires you to keep detailed records of cryptocurrency transactions for five years after you ‘created or got the records’ or “completed the transactions or acts those records relate to”. The ATO is interested in your crypto-related income and capital gains. You must include both on your Annual Tax Return, just as you must include your ordinary income, profits, and losses.
Record for crypto taxes. Image: Koinly
Tax deadline
The Australian tax year is between July 1 and June 30. If you file your tax return for the period of July 1, 2022 to June 30, 2022, you must do it by October 31, 2022. Lodging through an accountant? You must file by March 31, 2023.
Accounting method used
As an investor, you can compute capital gains using FIFO, HIFO, or LIFO as long as you can uniquely identify your bitcoin assets.
The ATO requires you to utilise FIFO when computing your crypto income tax if you are a trader. Traders are subject to income tax for business purposes, not capital gains laws. This indicates that your cryptocurrency is your trading stock, and you must use the guidelines for valuing trading stock.
Filing with myTax
How To File Your Australian Crypto Taxes On myTax!
After you or your accountant have calculated your crypto tax totals (there’s an app for that! ), the best method to submit your taxes in Australia is online using myTax, which is accessible through your myGov dashboard.
Start with your myTax account, which can be accessed via your myGov dashboard.
1. From the myGov dashboard, select ATO myTax (you must previously connect your ATO profile to myGov)
2. From your myTax dashboard, through the top menu, select tax. You can see a list of your upcoming lodgements, previous lodgements and refunds. Choose this year’s tax return.
3. You can add or amend your personal and financial institution contact information before entering your annual crypto totals; you must personalise Your Tax Return.
4. Here, you will choose the areas that apply to you so they can be included in your tax return. These will pertain to capital gains, earnings, and deductions.
5. Select this option to include cryptocurrency capital gains on your tax return. ‘You had Australian interest, or other Australian income or losses from investments or property’. From the drop-down menu, select Capital gains or losses not from a managed fund. This will apply to most of the cryptocurrency community, which the ATO views as investors.
6. Next, you must make a selection around your income. Don’t forget to check the box for deductions – You had other income not listed above.
7. Select Other deductions; you’ll input relevant costs here. After personalising your tax return, go to step 2: Prepare return.
8. Let’s examine the Capital Gains Tax: Your capital gains summary can be seen on the first page of your Koinly report. Copy the amount of Net capital gains from the report into this column
9. If you make a profit, you can be entitled for a long-term discount on assets held for more than a year; Koinly displays the amount of the discount here. Subtract this from the section titled Net capital gain. If you incurred further losses in prior years, deduct these as well.
10. Include the whole amount under the 18H ‘Capital gains for the current year’ designation on your tax return.
11. If you’ve had your cryptocurrency for more than a year, you can deduct 50% of your capital gain or determine the indexation factor used for your capital gain.
12. If you have held your cryptocurrency for less than a year, you must utilise the alternative approach, which involves subtracting your cost base from your selling price.
13. This final sum is stated on line 18A, labelled “NET capital gain.” Standard marginal tax rates are then applied to your entire taxable income, which includes wage and interest income.
14. Now, you can have made revenue from your cryptocurrency throughout the previous fiscal year. These totals can be seen in the Income summary section of your Koinly report.
Filing with paper forms
You can also declare your cryptocurrency activities on paper and send the documents via mail. One form is for income, while the other is for capital gains.
Crypto income is reported on question 2 of the 2021 Individual Tax Return (NAT 2541).
Bitcoin Capital Gains: You must choose YES at question 1 of the Taxpayer’s Declaration on your 2022 Individual Income Tax Return.
Next, finish question 18 of the Individual tax return instructions and Individual tax return (supplementary section NAT 2679).
- If you made a profit, include the whole amount under the 18H “Current year capital gains” label on your tax return.
- Enter your entire capital loss in the 18V’ NET capital losses carried forwards to subsequent income years’ label if you made a loss.
- This final sum is stated on label 18A, labelled “NET capital gain.”
- If your total profits or losses exceed $10,000, you must complete a Capital gains tax (CGT) schedule.
Calculating your crypto taxes (example)
As an example, let’s look at how capital gains are computed.
On July 1, 2020, Peter paid $1000 for 1 BTC. Later, on July 5, 2020, he exchanged it for 20 ETH. At this time, the market value of 20 ETH for $1500.
CoinSpot also awarded him 0.15 ETH (worth $10) as a registration incentive.
We will utilise Koinly, a free online cryptocurrency tax calculator to compute Peter’s cryptocurrency taxes.
After manually inputting the three transactions into Koinly, the outcome is:
Each transaction’s profit or loss is explicitly outlined. On the Tax Reports page, we can see the overall capital gains.
Peter will have a taxable capital gain of $500 in addition to $10 in taxable income from cryptocurrency.
Who can help you calculate crypto tax?
Here are three methods to handle cryptocurrency taxes and remain in the taxman’s good graces.
- Utilise crypto tax software to generate a tax report on crypto activities per your country’s tax laws. Send the report to your accountant so that they can finish your tax return. This is a wise decision, particularly if you have DeFi profits to consider.
- Utilise a crypto tax calculator to generate a report of crypto activities for tax purposes. Add the required information from your cryptocurrency tax report to your myTax return and submit it yourself online.
- Provide your accountant with transaction histories, statements, and perhaps historical cryptocurrency-to-AUD conversions to calculate your crypto activity. Let them figure it out and manage the file, though it will be a time-consuming and costly task.
How to avoid cryptocurrency tax in Australia
Deducting Cryptocurrency Losses & Trading Fees
The next stage in minimising your tax bill is determining which losses and costs can be deducted from your taxable income. To do this, you must first decide whether or not you will be categorised as someone who owns crypto as an investment or as someone who is conducting a crypto trading business.
Crypto trading or cryptocurrency used in business
If you’re operating a crypto business, whether it’s mining, trading, or exchanging, you can deduct most of your business expenses as long as they are directly tied to yielding our assessable income. Assuming you comply with the ATO’s non-commercial losses guidelines, you are operating a genuine company.
The trading stock rules, not the CGT regulations, apply if you hold cryptocurrencies for sale or exchange throughout the ordinary course of your business. The gains from the sale of cryptocurrency held as trading stock in a business are considered regular income, although the cost of purchasing cryptocurrency held as trading stock is deductible.
Remember that the crypto you possess at the end of the year is your trading stock, and you must include its value in your taxable income. Check for “simplified trading stock rules” if your company’s turnover is less than $10 million. Intriguingly, you can report the value of your crypto assets at cost, market, or replacement value, giving you some tax planning options.
Purchasing crypto to pay for something else / Personal use asset
If you hold cryptocurrencies as an asset for personal use, you can be free from capital gains tax. You are qualified for this exemption if you acquire less than AU$10000 worth of cryptocurrencies in a short time to buy anything else using cryptocurrency.
When the cryptocurrency is bought and kept for some time before such transactions, or when just a tiny fraction of the cryptocurrency is employed to conduct transactions, it is doubtful that the cryptocurrency is an asset retained for personal use. A cryptocurrency is not likely to be an asset for personal use under the following circumstances:
- When you convert crypto to Austrian dollars or another cryptocurrency in order to buy goods for personal use.
- If you utilise a payment gateway or other payment intermediary to obtain the goods on your behalf, you must pay a fee (unlike when using crypto directly).
The timing of crypto’s disposal is the determining factor in determining whether it is an asset for personal use. The longer a cryptocurrency is kept, the less likely it is to be an asset for personal use, even if it is eventually used to buy products for personal use. This is because the value of the cryptocurrency has likely increased throughout the holding period.
Utilise this provision with caution. If the ATO investigates you, the burden of evidence is on you to demonstrate that the cryptocurrency was used for personal purposes. Also, capital losses incurred on assets used for personal purposes cannot be deducted against capital gains at any time.
Deducting cryptocurrency mining expenses
It depends on whether you mine crypto as a business or a hobby; you can determine this by visiting the Are-you-in-business section on the ATO website.
