Crypto Tax Australia 2023: Capital Gains on Cryptocurrency Trading
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) 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, as well as other coins,and non-fungible tokens (NFTs).
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
For individuals, there are two ways that cryptocurrency can be taxed in Australia: as a capital gains asset or as income. If you’re running a business, separate rules apply but for the purpose of this guide, we’ll focus on individual investors.
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 (including with spending cards)
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 ordinary income then becomes the cost base of the asset, which is relevant when the ETH is disposed of to work out any subsequent capital gain or loss amounts.
Some cryptocurrency activity that is declared as income includes:
● Staking or lending cryptocurrency for interest
● Airdrops that are not initial allocation airdrops
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. However, if you pay for transaction fees with crypto, you may trigger a disposal event.
Buying personal goods with cryptocurrency
Personal goods purchased with cryptocurrencies generally lead to taxable events when you make the purchase with crypto. Australia has a Personal Use Asset rule where capital gains are disregarded for personal use items less than $10,000.
However, it is difficult for personal use asset rule to apply if you have held crypto for a certain period of time. The longer you hold crypto to later spend on personal use items, the more likely it is an investment rather than a personal use asset.
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.
The ATO changed its guidance for Airdrops recently. Previously, Airdrops needed to be reported as income at the time received. In updated guidance, the ATO states that Initial Allocation Airdrops” are not taxed as ordinary income when received. The cost base of the new asset will be $0 and is still subject to capital gains tax when you sell. According to the ATO, an Initial Allocation Airdrop is:
“A crypto project may make an initial airdrop of tokens that is the very first distribution of its tokens. These tokens are the initial allocation, if there has been no trading in the project's tokens prior to the airdrop.”
Airdrops which are not ‘initial allocation airdrops’ will be taxed as ordinary income when received.
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 taxable event is triggered 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 may not be 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 as capital gains tax. However, hobbyists cannot deduct mining-associated costs such as equipment and electricity.
Staking rewards are subject to income tax when received, 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.
Gifting cryptocurrency is considered a disposal event, which means that CGT must be paid on it. Receiving a gift establishes the cost base at market value on the day you received it, as per shares.
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. Investing in crypto through SMSFs are complex and it is important to get professional advice to maintain strict compliance with SMSF regulations. 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 crucial to have proper records to justify your tax disclosures.. Just as you would keep records for work expenses and property you own, the same needs to be done for cryptocurrency. Thankfully, we’ve partnered with our friends at Koinly who can help get your crypto tax records in minutes.
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. We’ve also partnered with Koinly to provide Single Sign-on functionality via your Cointree account. SSO is the perfect solution for anyone who wants an easier option come tax time. With this feature, you can log in to Koinly with just one click right from within your Cointree account, and then upload your crypto transactions.
Access your Cointree tax tools by 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, it is always recommended to seek tax advice for your individual circumstances.
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 last year we hosted a webinar on all things tax and crypto, you can watch that here.
Stay tuned for Koinly tax updates throughout the season.
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.