Crypto Tax Australia
Written by: Canny Accounting
Since the introduction of Bitcoin in 2009, cryptocurrency has become increasingly popular in Australia. Inspired by the Global Financial Crisis of 2008 and the resulting loss of confidence in the banking industry, cryptocurrency is without a central governing body or agency. However, this does not mean that it is exempt from the scrutiny of the government bean counters – the Australian Taxation Office.
Touted as “the currency of the future”, cryptocurrency now has many different types, and it is becoming recognised as a quick and efficient means of facilitation of international financial transactions. However, transactions in foreign countries may attract different tax obligations, however, this article only applies to transactions within Australia!
This Brave New World + Future Certainties
While much of the future remains unknown, there are two certainties;
- Cryptocurrency is here to stay; and
- The Australian Taxation Office (ATO) is increasing its scrutiny of cryptocurrency use.
For taxation purposes, cryptocurrency is generally treated as an investment asset in the way that shares are and is therefore subject to, good old, Capital Gains Tax (CGT).
Does Your Financial Plan Include Cryptocurrency As An Investment?
Capital Gains Tax, which comes under the heading of income tax, is payable when items or assets that have increased in value are sold, realising a profit, and this is included on the income tax return lodged after such sale. If the items or assets have decreased in value and on the sale they make a loss, this is a capital loss. Losses are subtracted from the gross capital gain, giving a net capital. The net capital gain forms part of your assessable income.
Selling or disposing of items or assets within 12 months after purchase will mean paying the full amount of capital gains tax, however, if the items or assets are held for over 12 months, it means that you may be eligible for a 50% discount on the amount of capital gains tax that is to be paid.
This applies to cryptocurrency purchased by an individual for the purpose of an investment, making a profit, or as part of running a business. It is also important to note that swapping and gifting cryptocurrency – like selling it – are also considered as disposal and will attract capital gains tax in the same way.
For taxation purposes, the purchase price of cryptocurrency also includes any transaction fees and is known as a cost base. The cost base is deducted from the sale price to calculate the capital gain or the capital loss.
Financial Information Relating To Exemptions
Items and assets such as boats, electrical goods, and household items are considered personal use assets and are only subject to capital gains tax when sold if their purchase price was greater than $10,000. If you are claiming an exemption from capital gains tax for cryptocurrency under the value of $10,000 which is used for personal use purchases, it is necessary to provide proof that the items and assets purchased were for personal use – for example, to pay for a holiday, a wedding, or a car. If the value of the cryptocurrency purchased was over $10,000 the exemption will not apply.
There are also additional complications that apply – the timing of the cryptocurrency acquisition and subsequent purchases. If the cryptocurrency is held for a reasonable amount of time before using it to make purchases, it is likely to be considered as acquired for investment purposes and will therefore attract capital gains tax.
To be deemed as being for personal use, the purchase of the items or assets should be made as soon as possible after the purchase of the cryptocurrency. The recommendation is to do this one the same day – because cryptocurrency fluctuates far more quickly than standard currency, and can therefore result in tangible gains or losses within an extremely short amount of time.
Donations of cryptocurrency are exempt from any tax, and as with charitable donations, they are considered a tax deduction. The amount of the deduction is determined by the capital gain or capital loss based on the value of the cryptocurrency both on the purchase date and on the date of donation.
Cryptocurrency in Business + A Proper Accounting System
Buying or exchanging cryptocurrency for specific cryptocurrency trading businesses, cryptocurrency mining businesses and cryptocurrency exchange businesses is subject to trading stock rules, not capital gains tax rules. The ATO website has details of these requirements
However, cryptocurrency can also be used for general businesses to purchase items and even to pay wages and salaries. Receiving cryptocurrency for goods and services provided requires the same reporting as business income requirements. Payment of wages and salary by cryptocurrency attracts PAYG tax obligations, and salary sacrificing and by using cryptocurrency, this also attracts fringe benefits tax.
Record-Keeping + Financial Reporting
As with all financial dealings that are subject to taxation, it is important to keep detailed records of all cryptocurrency transactions and dealings. These include the date of purchases and sales and the value (in Australian dollars) at the time of purchase and sale. Details of what the transaction was for and of the other party should also be kept.
As with the records for regular taxation returns, receipts of transactions should be retained as well as records of agents, accountants, and any legal personnel (if applicable), and any software costs for the purpose of managing the taxation affairs.
Currently, the ATO requires that records be kept for five years after disposal of the cryptocurrency.
There are various software and apps out there in the market which help to keep your records in check for all of your cryptocurrency transactions and spit out the numbers when it comes to tax time, which in the long run saves you a lot of hassle having to go back through bank statements and bulky excel spreadsheets doing manual calculations – better yet, they’re more accurate. However, please check the authenticity of the software before making a purchase and be mindful of the fact that the software or the app that you choose to use, is authorised by the ATO!
Tax Law + ATO Scrutiny
As with all new technology and its rapid uptake, there is often a grey period where rules and legislation haven’t quite caught up. While this may have been the case several years ago, the period of uncertainty has definitely come to an end.
An article on the ATO website states that since a dramatic upswing at the beginning of 2020, there are now over 600,000 people who have invested in ‘crypto assets’. They advise that they have written to many of these people, and will continue to write, about the tax obligations of using cryptocurrency.
We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations.
Cryptocurrency is here to stay, and even in its infancy, it is providing a wealth of opportunities and challenges. As always, it is wise to speak to your financial adviser to get current advice on the currency of the future. If you don’t already have a financial advisor, our team at Canny Advisory are always ready and willing to help!
Accountants Geelong Trust Canny Accounting For Your Cryptocurrency Tax Obligations
Canny Accounting has been helping people near and far with their tax obligations for over 60 years. We are well versed in all cryptocurrency matters and can help you along your investing journey when it comes time to lodge your income tax returns as well as advise on any capital gains tax advice that you may need now, or in the future depending on where you are on your cryptocurrency journey.