Cryptocurrency trades in Australia have been increasing in recent years, with a recent survey indicating the country is third in the world in terms of cryptocurrency adoption. The Australian Securities and Investments Commission (ASIC) considers digital currencies an asset hence subject to capital gains taxation. However, as a new product in the market, most traders are yet to understand how crypto taxation works in Australia.
Here is how crypto taxation works in Australia according to the Australian Taxation Office (ATO).
The capital gains tax
Over the past year, crypto holders have seen massive gains. For example, those who purchase Bitcoin valued at around $4000 AUD in April 2020 would have had around 600% profit by mid-2021 when the token traded at over $80,000 AUD. The same applies to Ethereum, with even further profits for the holders of tokens like Dogecoin.
While the profits might seem massive, capital gain taxes remain a concern for most holders. The capital gains charged depends on how it was acquired and traded.
The ATO understands that most people hold crypto as an investment that grows in value after some time, therefore making them subject to capital gains tax (CGT). The time one holds the crypto also matters when it comes to taxation. Holding the crypto for more than a year comes with a 50% discount on taxes.
Crypto investors like miners and traders are not subject to the CGT, instead, they have to comply with the rules of trading stocks. Profits made from such businesses are considered to come under ordinary income taxes instead of capital gains tax.
Acquiring crypto for personal use and enjoyment does not attract capital gains hence no taxes. However, the period the assets are held is a determinant of whether it gains capital or not. The longer the token is held the more capital it gains, even if it were to be used for personal consumption in the long run.
Even though crypto operates in an anonymous digital world, the ATO keeps track of crypto investments in the country. It relies on records from financial institutions like banks and cryptocurrency online exchanges. The tax authority believes more than 800,000 Australians have invested in crypto, some of whom have not declared their capital gains.
The tax office claims that only 100,000 of crypto investors are declaring their capital gains. That means it has to find ways to increase crackdown on crypto tax dodgers to ensure the majority of traders file their taxes.
Avoiding errors when declaring capital gains
As a new asset, ATO provides ways that crypto traders can use to avoid errors when declaring taxes. The first way is to deduct capital losses the same year they occur. The net capital losses can later be used in offsetting future capital gains.
Factor in the cost base by including additional expenses like the brokerage fees, legal fees, transfer costs, borrowing expenses and interest on loans. There’s also the need to keep records such as receipts and details, exchanges and the tax agents’ records.
As an ever-changing landscape, the ATO and ASIC are always updating crypto traders in case of any changes. However, it is advisable to seek clarification from competent tax agents when unsure of anything.