Are you questioning the rules and regulations for cryptocurrency tax in Australia? We’re breaking down everything you need to know about Australian cryptocurrency in this ultimate guide.
We’ll cover cryptocurrency tax laws, Capital Gains Tax, crypto Income Tax, avoiding tax on crypto in Australia, and how crypto tax software can help streamline crypto taxes for you.
Cryptocurrency Taxes: An Overview
Is cryptocurrency taxed in Australia? The short answer is yes. In Australia, cryptocurrency is considered an asset and is subjected to Capital Gains Tax (CGT) and Income Tax.
The Australian Taxation Office [ATO] is responsible for generating and monitoring taxes on goods and property throughout Australia, including cryptocurrency. If you have bought, sold, or earned any cryptocurrency within the last financial year, you are required to report crypto totals to the ATO via your Income Tax Return.
How Does the ATO Classify Crypto?
The Australian government considers bitcoin and other cryptocurrencies property, not money or foreign currency. The ATO classes crypto as an asset to collect CGT. However, crypto can be viewed and taxed as Income Tax depending on whether the ATO considers you a trader or investor.
Investor or Trader? Why It Makes a Difference
The ATO has set rules for individual investors and taxpayers who receive regular income from crypto trading. As a result, the ATO identifies users as traders or investors for tax purposes. Knowing which category you fall under is crucial to understanding your tax obligations.
Investor
A cryptocurrency investor’s goal is to increase wealth over time through buy-and-hold investments of cryptocurrency gradually. Crypto investors are required to pay CGT and occasionally Income Tax. Most Australians fall under this category.
Trader
Cryptocurrency traders, be it large businesses or sole operators, frequently buy and sell cryptocurrency to outperform buy-and-hold investing by taking advantage of the rising and falling markets. Most crypto traders only pay Income Tax and must provide documentation proving the cryptocurrency is used for business purposes.
In simple terms, this is a general rule of thumb to follow:
INVESTOR TRADER
– Buys their crypto – Commercially ‘mines’ crypto
– Mines crypto as a hobby – Trades crypto as a business
– Casually trades crypto – Runs a crypto-related business
– Returns over an extended time – Conducts business-related crypto transactions
Capital Gains Tax (CGT) 101
As mentioned above, CGT, or Capital Gains Tax, is applied to assets. This occurs when you dispose of your cryptocurrency. Disposals are considered as:
– Selling or gifting cryptocurrency
– Trading or exchanging cryptocurrency (including disposing of one type of crypto for another)
– Converting cryptocurrency to a fiat currency (currency that is established by government regulation or law) such as Australian dollars
– Using cryptocurrency to purchase goods or services
Digital wallets may contain different types of cryptocurrencies. In this instance, each type is subjected to a separate CGT.
Capital Gains
A capital gains event occurs if you profit after selling, gifting, or trading cryptocurrency. If the proceeds from the disposal are more than what it cost you to purchase initially, you’ll make a capital gain.
For example, if you purchased Bitcoin for $2,000 and eventually sell it for $3,000, you will have made a capital gain of $1,000. As a result, the $1,000 profit is considered taxable.
12-Month CGT Discount
If you keep cryptocurrency for more than a year before selling or trading, you may be entitled to a 50% CGT discount, regardless of if the market value changes. Capital gains or losses cannot be made until you dispose of your crypto holdings.
This discount applies to individual taxpayers. Compliant super funds are eligible for a 1/3 (33.3…%) discount.
Capital Losses
Suppose the resulting amount from the disposal of your cryptocurrency is less than what you initially purchased it for (according to current market value). In that case, it is known as a capital loss. If you make a capital net loss, you can deduct the loss from any other asset gains you may have.
This loss can even carry over for years to come. Losses tend to offset gains made on crypto investments, shared investments, and even property investments. Although, you cannot deduct a net capital loss from any other income.
Reporting Your CGT with the ATO
Crypto activity in terms of income and capital gains needs to be reported to the ATO annually. Both items are required to be reported on your Tax Return, similarly to your regular income, gains, and losses.
Using an accountant with crypto experience is the best way to meet record-keeping obligations and review cryptocurrency transactions while working through the Australian crypto tax.
Total Assessable Income
A common misunderstanding throughout the tax process is that capital gains tax is paid separately from your income tax. Your net capital gain is simply added to your taxable income for the year in which assets were sold or disposed of. This occurs after applying any capital losses and the CGT discount.
For example, Mark earns a salary of $80,000 per year. He purchases 2 ETH for $6,000, and five months later, he sells it for $10,000, resulting in a net profit of $4,000. This gain of $4,000 will be added to his total assessable income within a financial year. Here’s what Mark’s income tax return will look like:
- WAGES: $80,000
- CAPITAL GAINS: $4,000
- TOTAL INCOME: $84,000
Mark must now pay tax on gains received based on his total assessable income. Using the current marginal tax rates in Australia, Mark’s tax for the financial year will be determined as follows:
- 0% income tax for the first $18,200 of his income, according to the tax-free threshold
- 19% income tax on the second tier from $18,201 up to $45,000, which equals $5,092
- 32.5% income tax for the portion of income from $45,001 to $84,000 which equals $12,675
TOTAL INCOME TAX: $17,767
2% MEDICARE LEVY TAX (2% x $84,000): $1,680
TOTAL TAX FOR THE YEAR: $19,447
Mark could qualify for additional tax deductions and tax offsets to change the final amount. Taxes have been withheld from Mark’s wages throughout the year, which will reduce his tax payable amount.
Now, let’s look at a different scenario.
Bethany is unemployed and purchased 0.125 BTC for $5,000. A few months later, she sold it for $8,000, resulting in a net gain of $3,000. Here’s what Bethany’s tax return will look like:
- WAGES: $0
- CAPITAL GAINS: $3,000
- TOTAL INCOME: $3,000
Bethany is not required to pay any crypto tax on her gains since her total assessable income is $3,000. This falls below the tax-free threshold of earnings under $18,200.
What Information Does the ATO Gather for Australian Cryptocurrency Tax?
Exchanging cryptocurrency for currency is not a way to avoid cryptocurrency taxation. The ATO has been collecting records of Australian cryptocurrency from designated service providers (DSPs) since May of 2019. This was to ensure individuals were held responsible for reporting accurate tax information.
DSPs range from cryptocurrency exchanges, brokerage services, payment methods, and more. Information collected from DSPs can include your name, address, date of birth, and other personal information.
The ATO can also access your transactions and account details, such as the current status of your accounts, any linked bank accounts, associated wallets, types of crypto, including their amounts, and other unique identifiers.
Most gains and losses related to cryptocurrency are subject to tax, with the exemption of gains for personal use assets. It’s best to do your research and prepare for these scenarios when lodging your tax return. If unsure consult an experienced crypto tax agent such as Accountants Direct.
It is estimated that between 500,000 to one million Australians currently trade in cryptocurrency. This number has significantly grown in recent years, with more Australians investing in crypto-assets than ever before.
The ATO aims to help tax-paying individuals by correcting misinformation that is declared on their tax forms.
We’ve noticed a huge increase in corrected returns in the past year due to poorly reported or unreported crypto sales. Following the data matching from DSPs, individuals are allotted 28 days to clarify any potential mistakes that data providers have reported.
How Do I Calculate Capital Gains Tax, and When Do I Apply for It?
As previously discussed, a CGT event occurs when you dispose of your cryptocurrency (or most other investment assets) . This includes any time you sell, gift, trade, exchange, convert, or use your crypto to make a purchase.
If you hold your cryptocurrency for at least one year before it is disposed of, you will pay 50% less on your crypto gains tax (12- month CGT discount), so its often advisable to hold crypto for the medium term (from a tax perspective at least)
Accountants Direct can calculate your CGT and advise you on the best compliant and up to date record-keeping tools available.
A real-world example:
Johnathan purchased 15,000 Cardano (ADA) at 50c for $7,500. He kept his crypto on hold but decided to sell for $10,000 after 18 months.
He received a capital gain of $2,500. Johnathan has no capital losses and is entitled to the 50% CGT discount. He will declare a capital gain of $1,250 on his tax return.
In Australia, the tax year starts on July 1 and ends the following year on June 30. Australians must lodge their income taxes and report any capital gains by October 31 unless they are represented by a Registered Tax Agent such as ourselves. In which case they receive an extra 6 months to lodge (ie by mid May the following year)
How Does Australia Define Personal Use Assets?
Personal use assets are assets that you keep for personal use or enjoyment. These assets are subject to CGT if it costs more than $10,000 to acquire them. This includes, but is not limited to:
>boats
>furniture
>electrical goods
>household items
>an option or right to obtain a personal use asset
>a debt resulting from a CGT event involving a CGT asset kept for your personal use or making a private loan to a family member or friend
The following are not classed as personal use assets, which are usually exempt from CGT:
>collectibles (may be subject to CGT)
>your home
>automotive vehicles
If you individually dispose of any personal use assets typically sold as a set, you will only receive an exemption if the set was initially purchased for $10,000 or less.
If you are using cryptocurrency to purchase items for personal use, it is considered a personal use asset and may be eligible for exemption. Those who own a business and predominantly conduct cryptocurrency activities or crypto transactions are subject to CGT.
Capital Gains Tax on Investments:
Cryptocurrency has a tremendous influence on investment portfolios. Regardless of the changes in market value, crypto that sits in your investment portfolio does not make a capital gain or loss until it is disposed of. Thus, you are not responsible for paying CGT on unrealised gains.
Diversifying your crypto portfolio is defined as investing your money in various crypto scenarios to reduce risk if one instance performs poorly. Implementing a diversified system allows you to yield the best possible gain even if other items do not perform well.
Capital Gains Tax When Exchanging Cryptocurrencies:
Most smartphones and computers can load digital wallets that can hold different cryptocurrencies. While they all fall under a broad category, each type is considered its CGT asset.
The ATO states that it is not considered disposal when you’re moving crypto within your digital wallets. Therefore, you do not need to report it or pay a Capital Gains Tax. From a tax perspective, however, lines can be blurred in the world of crypto when it comes to transactions like adding and removing liquidity.
Thus, when you exchange one cryptocurrency for another, you dispose of one and acquire the other. The ATO deems cryptocurrency as property, and its value is based on the currency’s market value on the day it was traded or gained.
When calculating Capital Gains Tax, you need to look at the value of the crypto transaction when it is acquired. To calculate the Capital Gains Tax, you would look at the market value of the cryptocurrency you receive at the time of transaction.
CGT When Gifting Crypto
The ATO considers gifting crypto as a taxable event and is subject to Capital Gains tax upon disposal- whether the reason for the gift is altruistic or opportunistic.
If you receive crypto as a gift, you are not required to pay any CGT. However, you will need to keep a record of the fair market value according to the day it was received. Should you choose to sell or re-gift your cryptocurrency, this will serve as your cost basis to calculate any potential gain or loss.
While receiving a crypto gift is tax-free, the disposal – be it selling, spending, trading, or re-gifting, is subject to Capital Gains Tax.
Calculating Your Capital Gains or Losses
Knowing the value of your cryptocurrency in Australian dollars (AUD) is essential for calculating capital gains or losses. Using a reputable online exchange to help record and assess this data can simplify this process. Accountants Direct can recommend and facilitate the establishment of this if required.
When you directly buy or sell crypto with AUD, you will need to record any brokerage fees included in each transaction. If a purchase or sale was made using an alternative cryptocurrency platform, it must be calculated by the Australian market value the moment the transaction occurred.
The amount you sold your crypto for in AUD, minus what you purchased it for, equals your gain or loss. The ATO guides how to calculate and report your capital gains. To know exactly how much you gained or lost, you will need to determine your cost base.
Crypto cost price plus any brokerage or transfer fees equals your cost base. If a capital gain is made when you dispose of your cryptocurrency, you will pay tax on some or all of that gain.
As discussed earlier, additional measures to consider would be the income tax threshold and a potential 12-month, 50% CGT discount.
When Does Income Tax Apply, and How Do You Calculate It?
There are instances where receiving cryptocurrency is treated as income, thus requiring you to report it on your Income Tax returns . This is especially important if the ATO views you as a trader versus an investor.
There are three ways to earn crypto:
- getting your salary paid in crypto
- selling NFTs as an artist or a dealer (this would be considered business income)
- becoming a validator and earning through Proof of Stake or Proof by Mine*
*Proof of Stake, also known as Proof of Work or Proof of Mine, is a system used to validate cryptocurrency transactions. Owners of cryptocurrency can stake their coins, which provides the ability to check new blocks of transactions and add them to a blockchain. This ensures crypto transactions are valid and accurate.
You are taxed differently if you acquire new crypto as a hobby miner rather than as a commercial operation. There are also “engage-to-earn” platforms that pay users in crypto, based on behaviors such as:
-receiving airdrops
-obtaining referral awards
-learn to earn campaigns
-watch to earn platforms like Odysee
-browse to earn platforms like Brave
-shop to earn platforms like Lolli
-play to earn platforms
-DeFi, or decentralized finance
-earning interest through yield farming
-earning liquidity pool tokens, governance, or reward tokens
-lending your crypto to platforms to earn interest
-earning crypto dividends on platforms like CoinRabbit
Essentially, if you receive cryptocurrency as payment for a good or service or mine crypto, it is considered ordinary, taxable income. Market value is then applied according to the day the cryptocurrency was received.
If you claim cryptocurrency as ordinary income, you may be subject to additional deductions. Any business expenses purchased with cryptocurrency within the previous financial year could be deducted from your annual taxable income, (similarly if you were to pay with traditional currency). This also includes the costs of obtaining the cryptocurrency itself.
For example:
Miles has made a career from trading cryptocurrency. He purchases a 200 Coin B for $15,000, and on the same day, sells 100 of Coin B for $18,000.
Miles can claim a deduction of $15,000 for the initial purchase of Coin B at 200, then declare the $18,000 he made from selling the 100 of Coin B as income.
Additionally, Miles must apply the trading stock rules to determine whether there is an income deduction according to the change in the value of the closing stock.
What If I Accept Cryptocurrency, but I am Not a Miner or Trader of Crypto?
A growing number of Australian businesses accept cryptocurrency in exchange for goods or services. Its value should be calculated in Australian dollars and is considered part of your ordinary income. Currency exchanges help estimate the value of your crypto in AUD.
Any business expenses that arise and are paid for using cryptocurrency are entitled to deductions based on the items’ value, as determined by the ATO. In 2022, cryptocurrency can be considered a form of payment for virtually any item, but there must be a valuation equating to physical AUD.
If you pay for goods or services or receive any crypto as a form of payment, you must keep records of its AUD value, as well as the date it was purchased and what items or services the crypto was used for.
Getting Paid in Cryptocurrency
Similar to what is stated above, a growing number of Australian businesses accept cryptocurrency and even use it in their payroll. This is a typical instance among companies that handle operations by trading or exchanging crypto.
Employees can opt for a portion of their paycheck to come in cryptocurrency, just like standard currency. Thus, it is established as part of your income and is subject to Income Tax.
There are three categories of crypto payments:
-traditional peer-to-peer exchanges
-custodial wallet exchanges
-DIY conversions
Traditional peer-to-peer exchanges occur when both parties establish a digital wallet to store their coins or directly send crypto through a decentralized network. However, different coins require different wallets, and you cannot mix and match them. These wallets are non-custodial, meaning you are in charge of the wallet address and associated private key.
A custodial wallet exchange minimizes network fees and simplifies the payment process. Exchanges provide you with a crypto address to use within the custodial wallet, and the key is stored for you. Transactions are conducted similarly to peer-to-peer exchanges, in which you cannot mix and match your coins.
Using DIY crypto pay, you can convert a paycheck into AUD by purchasing crypto from an exchange. This is useful if your employer is not offering crypto as a form of payment yet. However, extra transaction fees or network charges can occur within the blockchain, such as using a credit card to purchase cryptocurrency.
How Are Rewards from Staking Taxed?
Crypto staking is the process of securing crypto holdings to obtain rewards or to earn interest. The accrued reward is based on the qualifying amount of the cryptocurrency that you stake. This is a mechanism used to improve the security of a Proof of Stake (PoS) blockchain.
Rewards received from staking cryptocurrency do not trigger a Capital Gains event. Alternatively, any tokens that are rewarded to users who stake their crypto are considered ordinary income according to the ATO.
Staking rewards are not cash. Thus, the asset’s market value must be determined when received. Income from staking rewards is an addition to your other sources of income and is taxed according to your income bracket.
Here is an example:
Abby stakes 200 MazaCoin (MZC), equivalent to $1,000 when she stakes it. After one year, Abby decides to unstake her cryptocurrency and receives an additional 30 MZC in staking rewards.
Abby researches the market value of the 30 MZC when she received it and determines its value to be $800. Abby obtains $800 worth of MZC is considered ordinary income for tax purposes.
If Abby chooses to sell her new MZC in the future, this will result in a Capital Gains event. Her cost base of the 30 MZC will be $800. However, if the value of Abby’s MZC increases, it will be a capital gain. These gains will then be added to her other sources of income and are taxed according to her tax situation.
How Are Proceeds from Airdrops Taxed?
An airdrop is a free distribution of cryptocurrency tokens or coins to multiple digital wallet addresses. Airdrops are usually a marketing ploy designed to gain new members’ attention, resulting in a more extensive user base and a broader disbursement of coins.
The ATO states any airdrops that are received are determined to be ordinary income, according to the fair market value of the coins on the date they are received. This applies to both participants of the involuntary airdrops.
To calculate how much income tax you need to pay on airdrops, calculate the fair market value of the crypto on the day it was received and add it to your Income Tax rate. The cost basis here is usually zero.
For example, you receive 100 DASH tokens from an airdrop. The day you receive them, the fair market value per token is $2.50. These tokens are subject to income tax, so their total net worth needs to be calculated. $2.50 x 100= $250 AUD. You will report $250 on your particular Tax Return form.
If you sell, trade, spend or gift your airdropped coins or tokens, it is considered disposal and is treated as a Capital Gains event. In this instance, the cost basis is the value of the coins when they were initially airdropped to you.
How Are Profits from NFTs Taxed?
NFTs, or Non-Fungible Tokens, are digital c
