Key points
- Cryptocurrency transactions are subject to taxation, it is important that you understand the rules to stay compliant.
- The Australian Tax Office (ATO) and global regulators are increasingly focusing on crypto, leveraging blockchain data and monitoring transactions.
- The article provides an overview of various taxation considerations around crypto, including capital gains tax, income tax, and the importance of record-keeping.
No longer just for tech enthusiasts, crypto is now a hot topic in the media and even at the weekend barbeque.
As crypto becomes more mainstream, the ATO and global regulators are sharpening their focus, leveraging blockchain data, seeking data from exchanges and monitoring cash transfers as the ATO formally reminds taxpayers to include crypto transactions in their annual income tax return.
This article offers a simplified overview of the various taxation considerations around crypto. For clarity purposes, we are assuming the crypto is held by an individual, as with any asset there is an opportunity to utilise structures to hold the crypto each with its own specific considerations.
Taxation can apply at multiple points; from the moment you transfer cash into your crypto account to when you withdraw funds from the crypto account into your everyday bank account. It is important to understand there are taxation implications of the following:
- Selling crypto in any currency.
- Trading one crypto for another.
- Using crypto to purchase goods or services.
- Receiving crypto through airdrops or staking rewards.
Capital Gains Tax (CGT)
Crypto is treated as property and not a currency as the name might suggest, therefore crypto is viewed as a CGT asset as a default.
The taxation rate depends on whether a gain/loss has been made and how long the asset has been held for:
- Capital gain and held for 12 months or more? You may be eligible for a 50% general CGT discount.
- Held for less than 12 months? Gains are taxed at your marginal income tax rate (i.e. no 50% general CGT discount).
- Made a loss? You can use crypto losses to offset capital gains and reduce your overall tax liability. If your capital losses exceed your capital gains, you can utilise the carry forward capital losses in future years.
Crypto used for personal purchases (e.g., buying goods or services for personal use) may be exempt from CGT if the cost is under $10,000 and the crypto is NOT held as an investment. However, be advised this exemption is unlikely to be available to most taxpayers based on current ATO guidance in place.
Income tax
If you earn crypto through activities like mining, staking, or as payment for services, it is considered ordinary income and taxed accordingly. The value of the crypto at the time you receive it is included in your assessable income.
If your crypto activity starts to look more like a business (going back to ordinary definitions) rather than as an investment, there is a likelihood the crypto activities would be taxed on revenue account or treated as trading stock. This means the usual 50% general CGT discount does not apply, irrespective of how long you have held the asset.
Determining whether something is CGT, revenue account or trading stock can be complex to navigate, and this is where we can assist. Our team can help you understand your obligations and structure your crypto dealings in a way that’s both compliant and tax efficient.
Record keeping
Maintaining detailed records of all your crypto transactions is crucial. This includes dates, amounts, and the value of the crypto in $AUD at the time of each transaction. Good record-keeping helps accurately calculate gains and losses.
In practice, we have found that many clients struggle with the record keeping due to the nature of wallets, anonymous exchanges and many platforms not having formal annual reporting.
Whilst there is some anonymity in the digital world, the ATO and global tax authorities can still access some information via the blockchain and various exchanges. Since 2019, the ATO has been using a data-matching program to gather information from providers, which helps them keep tabs on crypto transactions. If you are found to be under declaring income, you may incur significant penalties and interest. As the ATO increases its focus in this space, we anticipate the compliance regulations will become more complex.
Need help navigating the complexities?
Being aware of these tax considerations while managing your cryptocurrency investments can make a substantial difference to your tax bill. With the right strategy, you can manage your crypto portfolio more tax-effectively to maximise returns and stay compliant with Australian Tax regulations.
Our expert team is here to guide you through the regulations, reporting, and record-keeping so you can invest with clarity and confidence.
