Guide to Paying Tax on Cryptocurrency in Australia 2021
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
There are two ways that cryptocurrency can be taxed in Australia: as a capital gains asset or as income.
Capital gains tax
Cryptocurrency is classed as an asset in Australia and is taxed under capital gains tax rules, with gains (or losses) denominated in Australian dollar amounts upon disposal of cryptocurrency. You will need to pay tax if you buy cryptocurrency and later sell or exchange it at a higher price.
For example, if you bought 1 BTC when it was worth $1,000 and sold it when it was worth $10,000, then you would have a $9,000 gain and a tax obligation payable at end of the financial year.
If you keep your cryptocurrency for more than a year before selling it, then you may be entitled to a 50% 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.
Capital gains tax is commonly charged at your income tax rate.
When capital gains tax applies
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
Income tax rules apply when crypto profits were obtained through business or interest earning activities.
For example, an individual that stakes Ethereum and receives 0.001 ETH daily would declare it as income in AUD based on the market value of ETH at the time it was received. The amount that you declare as income then becomes the cost base of the asset, which is relevant when the ETH is disposed of.
Some cryptocurrency activity that is declared as income includes:
● Commercial cryptocurrency mining
● Professional cryptocurrency trading
● Business-related cryptocurrency transactions
● Staking or lending cryptocurrency
Which applies to me?
Different rules apply to individuals based on their classification as either an investor or trader, as well as the kind of activity they undertake.
The majority of individuals buying and selling cryptocurrencies are considered investors. Investors treat cryptocurrencies as a personal investment tool, looking to grow their wealth in a personal capacity, and are taxed under CGT rules on disposal. Investors conducting other financial activities in the crypto ecosystem are also taxable, such as staking and airdrops, and are classified under income tax rules.
Traders are individuals who operate a business buying and selling cryptocurrency with the primary purpose of earning income, as opposed to a hobby. Their activities must demonstrate they are an active trader, rather than a long-term investor. Instead of assessing every transaction as a taxable event, their profits are treated as business income and trading stock rules apply. Speak to an accountant if you are unsure about your classification.
How are cryptocurrency transactions treated?
Buying cryptocurrency with dollars
There are no taxes payable when Australian Dollars are used to purchase crypto. Although businesses are required to pay GST.
Selling cryptocurrency for dollars
Whenever cryptocurrency is sold, a taxable event is triggered.
Using one cryptocurrency to purchase another creates a taxable event on the cryptocurrency that is being sold.
When transferring cryptocurrency between wallets you own, no taxable event is triggered. It is fine to transfer crypto between hot and cold wallets.
Buying personal goods with cryptocurrency
If an individual is holding less than $10,000 in cryptocurrency and solely uses it to purchase goods or services, such as groceries, it’s considered personal goods and is not subject to CGT. If it is used as an investment tool in any capacity, it cannot be considered personal use.
Getting paid in cryptocurrency
When an employee or contractor is being paid in cryptocurrency, they must report the fair market value of the payment at the time they receive it. If an employee has a valid salary sacrifice arrangement with their employer to receive cryptocurrency as remuneration instead of Australian dollars, it is considered a fringe benefit.
Airdrops are when a project sends free coins to your wallet. These must be reported as income at the time they are received. They are subject to capital gains tax when sold.
Forks, also known as ‘chain splits’, are when one blockchain splits into two separate chains. If a cryptocurrency is held as an investment and a new cryptocurrency is received as a result of a chain split, a capital gain is incurred when the new asset is disposed of. The cost base of a new cryptocurrency received is zero. In other circumstances, the tax implications may differ, depending on the rights granted by the new chain and the relationship to the original cryptocurrency.
Mining cryptocurrency is taxable for businesses, but not for hobbyists. Businesses must report the fair value of the tokens when they’re received, while hobbyists must only report the income when the tokens are sold. However, hobbyists cannot deduct mining-associated costs such as equipment and electricity.
Staking rewards are subject to income taxes, much like the interest earned in a bank account. The value of the new tokens at the time they are received is treated as assessable income.
Self Managed Super Fund (SMSF)
Capital gains on cryptocurrencies sold from an SMSF are taxed at a concessional rate of 15%, assuming the fund is a ‘complying fund’ that follows the laws and rules for SMSFs. Compliant SMSFs are entitled to a CGT discount of 33% if the cryptocurrency has been owned for at least 12 months.
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 Australian 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.
The crypto tax webinar
Earlier this year we hosted a webinar on all things tax and crypto, you can watch that here.
|This article has been reviewed by
Cryptocate, a cryptocurrency tax consultancy helping take the complexity out of cryptocurrency tax reporting by preparing accurate cryptocurrency tax documentation for your accountant.
Information provided is for educational purposes and does not constitute a financial product or tax advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions.
For more information on how the ATO taxes cryptocurrency, check out their website.