Cryptocurrency and Australian Tax – What you need to know!
Cryptocurrency is becoming increasingly popular in Australia, with approx. 29% of people holding it in 2021. But what exactly is cryptocurrency, and how are you taxed on it?
What is Cryptocurrency?
Cryptocurrency (crypto) is decentralised digital money that is based on blockchain technology. Most people would have heard of Bitcoin, Ethereum or Ripple, however there are more than 5,000 difference cryptocurrencies available. Cryptocurrency is created from code using an encrypted string of data blocks, known as a blockchain. The blockchain is not controlled by any party, instead it creates multiple copies of the same transactions which are stored in different locations. Blockchains are considered secure by design.
Is Crypto taxed in Australia?
The ATO views crypto as a capital gains tax (CGT) asset, so the way that crypto is taxed is the same as property or shares. Crypto is not classed as currency or foreign currency. The ATO is provided data from both Australian and International crypto providers on crypto transactions and in recent years we have seen alerts on taxpayers’ reports showing that they disposed of crypto during the year. The ATO has data going back to 2014 and is ever increasing its data sources and types.
When is Crypto taxed?
As a CGT asset, crypto is taxed on disposal. There are several ways disposals occurs:
- Exchange one currency for another (ie Ethereum for Ripple)
- Trade, gift or sell crypto
- Convert crypto into a fiat currency (ie Australian dollars)
Transferring crypto from one wallet to another is not considered a disposal if you maintain ownership of it.
Working out your gain/(loss) from Crypto
If you have disposed crypto, this is when you will need to work out your gain or loss from that event. It’s important to remember these events need to be captured in Australian dollars, so if you exchange Bitcoin for Ethereum, you will need to convert the disposal of Bitcoin into $A.
The first step is to work out the cost base. This is the cost of owning the asset and includes the purchase price, plus certain costs associated with acquiring, holding, and disposing of it. Once you have this figure you take it away from the capital proceeds that you received for the crypto. If you have held the asset for longer than 12 months you can discount this amount by 50%.
If you end up with a loss you can use this to offset future capital gains, however you cannot deduct this from your other income. If it is a gain, this is added to your taxable income and is taxed at marginal rates.
What documents should I keep?
You need to keep all the records in relation to acquiring, holding, and disposing of crypto. You will need to keep all these records until 5 years after you dispose of the asset. These documents can include but are not limited to, receipt of transactions, brokerage fees, professional costs, software costs, digital wallet records and keys.
What documents should I give my accountant?
If you keep your documents organised throughout the year, tax time will be very simple for you. I’d recommend keeping them in a consistent place (whether it is online like one drive, on a USB or in a folder) and every time you get a new document filing it in a consistent format. Your online trading platform may also give you a tax report, which is handy to give to your accountant. If not, programs such as Koinly and Crypto Tax Calculator can give you a report.
If you are thinking of buying Crypto, or you have already bought it, we recommend seeking the advice of a tax professional to help guide you through your tax obligations.
