In the evolving digital financial landscape, cryptocurrencies are more than just a trading asset; they’re a new frontier in tax responsibility.
The Australian Taxation Office (ATO) classifies cryptocurrency as a taxable asset.
Transactions involving crypto may be subject to Capital Gains Tax (CGT). If you dispose of any crypto, you may be required to pay CGT on any capital gain.
The ATO also requires you to keep accurate records of acquiring the crypto 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 crypto transactions.
When Crypto is Taxable
The most common use of crypto is as an investment, in which case the crypto asset is a capital gains tax (CGT) asset.
If you acquire a crypto 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 crypto asset for at least 12 months.
In general, a CGT event happens when you dispose of a CGT asset. For the purposes of crypto assets, that may be when you:
- sell a crypto asset
- gift a crypto asset
- trade, exchange or swap one crypto asset for another
- convert a crypto asset to Australian or foreign currency
- buy goods or services with a crypto asset
- transfer between crypto wallets
Before you calculate CGT on your crypto assets, you will need to:
- check you have records for your crypto assets and crypto transactions
- convert the value of the crypto assets into Australian dollars.
You need to keep details for each crypto asset as they are separate CGT assets.
When Crypto is Non-Taxable
A crypto asset is a personal use asset if you keep or use it mainly for personal use. The most common situation of personal use of crypto assets is to buy items for personal use or consumption.
The relevant time for determining if a crypto asset is a personal use asset is when you dispose of it:
- A crypto 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 crypto 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 crypto asset is disregarded if both:
- it is a personal use asset
- you acquire 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.
At Rubiix Business Accountants, we are here to help you correctly report your crypto gains or losses in your Tax Return. If you have any queries relating to crypto in your tax return, reach out to our team and we will be able to assist in getting your tax return 100% correct.
Our assistance will help you avoid being charged fines and penalties by the ATO if you don’t report your crypto gains and losses or if you report them incorrectly.
You can find out more about tax and crypto directly from this link at the ATO website.
Frequently Asked Questions
What constitutes a ‘disposal’ of cryptocurrency for CGT purposes?
A disposal can include selling, trading, or spending cryptocurrency. It’s important to understand each instance that triggers a CGT event.
Are there any exceptions to crypto transactions being taxable?
Yes, transactions can be non-taxable when crypto is used for personal consumption, and the asset was acquired for less than $10,000.
How do I keep records for cryptocurrency transactions?
You’ll need to document the date, amount, and purpose of each transaction, as well as the fair market value in Australian dollars at the time.
Can I deduct a net capital loss from my income?
No, a net capital loss from crypto cannot be deducted from other income but can be used to reduce capital gains in the same income year or future years.
What is the CGT discount and how does it apply to crypto?
If you hold a crypto asset for more than 12 months, you may be eligible for a CGT discount, reducing the taxable gain by 50%.
What happens for tax purposes if I inherit cryptocurrency?
Inheritance of cryptocurrency is generally treated as a capital gains tax (CGT) event. The cost base of the inherited crypto would be the market value on the date of the deceased’s death, and CGT may apply when you later dispose of it.
What if I transfer crypto between wallets I own?
Transferring crypto between your own wallets is not considered a disposal, and thus not a CGT event.
How should I report lost or stolen cryptocurrency for tax purposes?
Lost or stolen cryptocurrency can result in a capital loss, which can be used to offset capital gains. However, you’ll need to provide evidence of ownership and the loss or theft event for the ATO to consider allowing a claim for the loss.
How does the ATO track compliance with crypto transactions?
The ATO employs data matching, risk profiling, and other compliance activities to ensure accurate reporting.
How can Rubiix Business Accountants help with my crypto tax obligations?
Rubiix can assist with accurate reporting, ensuring you comply with ATO regulations and avoid penalties.
