5 Ways Australian Investors Can Save Money on Crypto Tax

Navigating the tax code can feel stressful and complicated. That means many Australian crypto investors are unaware of the tactics they can use to legally reduce their tax liability. 

In this guide, we’ll break down 5 simple strategies that can help you save thousands of dollars on your tax return while staying compliant with Australian tax law. 

How is cryptocurrency taxed in Australia? 

Before we jump into our tax-savings strategies, let’s review the fundamentals of how cryptocurrency is taxed in Australia. 

In Australia, cryptocurrency is subject to ordinary income and capital gains tax. 

Ordinary income tax

When you earn cryptocurrency, you recognise ordinary income based on the fair market value of your crypto at the time of receipt. Examples include earning staking, mining, and referral rewards. 

Ordinary income example 

• Erika earns $1,000 of ETH through staking.
• Erika recognises $1,000 of income. 

Capital gains tax

When you dispose of cryptocurrency, you incur a capital gain based on how the value of your crypto has changed since you originally received it. Examples of disposals include selling your crypto, gifting your crypto, and trading your crypto for another cryptocurrency. 

Capital gains example 

• Ian buys $1,000 of BTC.
• Months later, Ian sells his BTC for $1,500.
• Ian recognises $500 of capital gain. 

Can the ATO track my cryptocurrency? 

Some investors believe that because cryptocurrency is pseudo-anonymous, it’s easy to evade taxes. This is not true.

Remember, exchanges operating in Australia are required to register as a designated service provider (DSP) and provide customer information upon request. In the past, the ATO has used data matching to match known investors to ‘anonymous’ wallets. 

We recommend against tax evasion in any and all circumstances. Instead, consider using the 5 legal tax avoidance strategies below. 

1. Hold your cryptocurrency for the long-term

The easiest way to save money on your cryptocurrency taxes is to hold your cryptocurrency for the long-term.

If you sell your crypto after less than 12 months of holding, 100% of your capital gain will be considered taxable income. However, when you sell crypto after more than 12 months, you’ll only recognize 50% of your capital gain as taxable income. 

This simple tactic has the potential to save you thousands in taxes!  

2. Harvest your crypto losses 

Losing money on cryptocurrency comes with a silver lining: potential tax savings! 

When you dispose of your cryptocurrency at a loss, you can claim a capital loss on your tax return. Capital losses can be used to offset gains from stocks, cryptocurrency, and other assets. 

Here’s an example to better understand how capital losses can reduce your tax bill. 

• Terri has $10,000 of capital gains for the year. 
• She sells her BTC for a $2,000 loss. 
• Terri’s net capital gain for the year is now $8,000. 

When Terri claims her loss, she offsets a portion of her gains and reduces her tax liability for the year. 

If you have a net loss for the year, you can roll forward your losses into future tax years! 

3. Donate your cryptocurrency 

If you donate your cryptocurrency to a deductible gift recipient (DGR), you can claim your donation as a tax deduction. You’ll be able to write off the fair market value of your crypto at the time of the donation. 

In addition, donating your cryptocurrency is not considered a taxable disposal. Even if the price of your crypto has appreciated since you originally received it, you won’t incur a capital gain. 

4. Use a Self-Managed Super Fund 

Super funds are designed to help you build wealth while minimising your tax liability. 

Generally, income from cryptocurrencies is taxed between 0-45%. However, income withdrawn from your super fund is taxed at a flat 15% rate. In addition, contributions to your super fund can be deducted from your taxable income for the year. 

At this time, most super funds don’t allow you to invest in cryptocurrencies directly (though you can invest in ETFs that track the price of different crypto-assets). However, you can invest in cryptocurrencies directly through a Self-Managed Super Fund. 

5. Use crypto tax software 

It’s important to keep accurate records of your crypto transactions for tax purposes. 

Mistakes on your tax return can lead to serious consequences down the line. In cases where you make false or misleading statements resulting in a tax shortfall, you will face a penalty that ranges from 25-75% of your unpaid taxes. 

If you’re looking for an easy way to generate a complete crypto tax report, crypto tax software like CoinLedger can help. The platform automatically connects with exchanges like CoinTree and wallets like MetaMask to help you calculate your crypto taxes in minutes. 

Once you’re done, you can lodge your tax return yourself, or send it directly to your accountant! 

In conclusion 

While there’s no way to legally evade your taxes, you can save thousands of dollars by leveraging the strategies above. Remember, the less money you pay in tax, the more you’ll be able to invest!