Beginner’s Guide to Paying Tax on Cryptocurrency in Australia 2020
If you’ve recently started trading in cryptocurrencies, then you might not have even thought about how it will affect your tax obligations.
With the Australian Tax Office (ATO) commenting earlier this year that they’ll be targeting cryptocurrency traders, it is important that you understand the tax obligations of your crypto trading.
One of the biggest mistakes cryptocurrency traders make is not declaring their trading activities when lodging their tax returns. All capital gains from cryptocurrencies like Bitcoin (BTC) need to be included.
But there’s no need to panic if this is your first-time declaring cryptocurrency as part of your income tax, you just need to know how to lodge it properly.
In this guide we’re going to explain:
- How cryptocurrency is taxed
- When capital gains tax applies
- What records you need to keep
- How to determine your capital gain (or loss)
How cryptocurrency is taxed in Australia
Cryptocurrency usually operates independently of a bank or government, so profit is determined in Australian dollar amounts when you exchange cryptocurrency for other cryptocurrencies or goods and services.
If you bought 1 BTC when it’s worth $1,000 and sell it when it’s worth $10,000, then you would have a $9,000 tax obligation at the moment it was sold.
There are two ways that profits or losses can get taxed.
Personal – investment tax
This is when you are trading in cryptocurrency for personal gain or as a hobby. This may include:
- Casually trading cryptocurrency
- Buying cryptocurrency for personal gain
- Mining cryptocurrency as a hobby
Business – income tax
This is when crypto profits were obtained for business activities. That may include:
- Commercial cryptocurrency mining
- Professional crypto trading
- Business-related cryptocurrency transactions
When capital gains tax applies
The ATO does not view cryptocurrency as money or currency and is instead classed as an asset for capital gains tax (CGT).
A CGT applies when you do one of the following:
- Sell or gift cryptocurrency
- Trade or exchange cryptocurrency for another crypto or fiat currency (currency established by a government like Australian dollars)
- Convert your cryptocurrency to fiat currency
- Use it to obtain goods or services
You will need to pay tax if you buy cryptocurrency and later sell or exchange it at a higher price.
If you keep your cryptocurrency for more than a year before selling it, then you may be entitled to get a CGT discount.
If you sell your cryptocurrency for less than what you paid, then you have experienced a capital loss. Those losses can be used to reduce capital gains if they occurred in the same financial year, or used as an offset against future capital gains.
Cryptocurrency records to keep for tax time
When it comes to keeping records for tax purposes, it’s better to have too many records than not enough. Just as you would keep records for work expenses and property you own, the same needs to be done for cryptocurrency.
For each cryptocurrency transaction you should keep the following:
- The date of each transaction
- The value of the cryptocurrency in Australia dollars at the time of the transaction
- The purpose of the transaction
- The details of the other party involved
Examples of records you should keep:
- Receipts of cryptocurrency purchases or transfers
- Exchange records
- Records of agent, accountant and legal costs
- Digital wallet records and keys
- Software costs related to managing your tax affairs
How to extract your crypto transactions from your Cointree account?
Cointree customers can easily download transaction data. We have streamlined tax time for our members with transaction exports, monthly holding statements and integrations with other crypto tax tools and SMSF platforms.
Access your Cointree tax tools following these steps:
Step 1: Log into your Cointree account
Step 2: Select Transactions from your Wallet dropdown menu
Step 3: The Export button is where you can choose what type of data you require. There are CSV, PDF and xml formats to download.
For more information on Cointree's tax tools, visit our support centre.
Determining your capital gain (or loss) by yourself vs through a professional
There are many online tools to calculate your capital gain or loss available that you can use. You can then include the results in your tax return.
However, if you are finding the whole process confusing and want to be certain you’re doing it correctly, there are agents and accountants who specialise in cryptocurrency tax. This is still a relatively new area of taxation so it might be a good idea to get some professional advice.
For more information on how the ATO taxes cryptocurrency, check out the their website.