What is Cryptocurrency?
Cryptocurrency, commonly referred to as crypto, is a digital or virtual currency. Unlike traditional currencies, it is not controlled by any central authority, and there are no physical coins or notes involved. Transactions are purely digital, making crypto distinct from conventional money. Since crypto is considered an asset, it is subject to different tax regulations compared to money. What are your tax obligations if you own cryptocurrency?
How is Cryptocurrency Tracked?
Cryptocurrency transactions are recorded in a blockchain, a digital ledger that stores all transactions across multiple copies worldwide. This ledger is decentralized, meaning it is not managed by any bank, government, or company. Each copy of the ledger contains the same transaction history, ensuring transparency and security.
Given the Australian Taxation Office (ATO) has been focusing on crypto in recent years, it’s crucial to understand the tax implications of owning cryptocurrencies. If you have sold, bought, or earned interest from crypto during the financial year (1 July – 30 June), you must declare these transactions on your next tax return.
How is Crypto Taxed in Australia?
An important term to understand for your tax return is “dispose.” This means to sell, gift, trade, exchange, convert, or use your crypto to buy things. Any such transaction is considered a disposal of cryptocurrency.
The ATO taxes cryptocurrency as a “capital gains tax (CGT) asset.” This requires you to declare all transactions where you traded, sold, or used crypto. The ATO does not classify crypto as money or foreign currency but as property, which makes it subject to capital gains tax.
How Does the ATO Know About Your Crypto?
If you have an account with any Australian cryptocurrency provider, the ATO likely already has your data, possibly dating back to 2014. The ATO collects information from crypto exchanges and wallet providers and continues to expand its data sources. Using foreign exchanges does not exempt you from ATO scrutiny.
How Much Tax Do You Pay on Crypto Gains?
A crypto gain, or “capital gains event,” occurs when you dispose of your cryptocurrency. A capital gain is the difference between the value when you acquired the crypto and when you disposed of it. If the proceeds exceed your cost, you have a capital gain. The cost base includes the purchase price and any related acquisition or disposal fees. The tax amount depends on your individual tax circumstances.
What Happens If You Made a Loss?
Even if you incur a loss, you must report it on your tax return. Reporting losses can benefit you by potentially reducing your overall crypto taxes through capital loss claims. Consulting a registered tax agent is advisable to ensure accurate reporting and avoid costly mistakes.
Are Crypto-to-Crypto Trades or Swaps Taxed?
Yes, any swap or exchange of cryptocurrencies is a taxable event in Australia. For instance, exchanging Bitcoin for Ripple is treated as a disposal of Bitcoin at its market price at the time of the exchange.
Do You Have to Pay Tax if You Transfer Crypto Between Wallets?
Transferring crypto between your own wallets does not incur tax, provided you own both wallets. However, you must maintain records of the original cost of the transferred coins. Personal transfers do not affect your capital gains or losses records.
How to Prepare Your Cryptocurrency Tax Return
To lodge your crypto tax return, you will need:
- A record of all crypto purchases, sales, and interest earned.
- A crypto tax report from your provider (e.g., Koinly or Crypto Tax Calculator) showing your profit/loss and capital gains for the financial year.
- Records of original costs for coins transferred between your wallets.
- All personal income tax items for your tax return.
Crypto tax can be complex, so it’s best to seek advice from a tax expert to ensure you keep accurate records throughout the financial year and correctly lodge your tax return.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail.
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