Tax Returns, ATO + Crypto
So, what are cryptocurrencies + what do you need to know?
Cryptocurrencies are rapidly evolving as an investment option and as a means for buying and selling goods. Cryptocurrency generally refers to Bitcoin, or other crypto or digital currencies that have similar characteristics as Bitcoin. If you have invested in or used cryptocurrencies to buy and sell goods, there are tax consequences of these transactions. The tax consequences will depend on each person’s individual circumstances and the transactions involved. You are required to keep records of any dealings with cryptocurrency transactions, in or out to work out the tax consequences.
The Australian Taxation Office, commonly known as the ATO’s view is that a capital gains tax (CGT) event occurs when you dispose of cryptocurrency. A disposal can occur in a number of situations, such as:
- Selling or gifting cryptocurrency
- Trading or exchanging cryptocurrency, including selling one type to buy another
- Converting cryptocurrency to standard currency, such as Australian dollars ($AUD)
- Using cryptocurrency to buy goods and services
If you sell or dispose of cryptocurrency for a greater amount than purchased for, you will make a capital gain and some, or all, of this gain may be taxable. There are certain gains or losses from the disposal of cryptocurrency that may be disregarded if they are in relation to personal use assets. An example of this would be if you purchase cryptocurrency to then use it to buy a concert ticket!
Exchanging cryptocurrency for another cryptocurrency
When you dispose of one type of cryptocurrency to acquire another type, you are disposing of one capital gains tax (CGT) asset to acquire another CGT asset, so there will be a capital gains tax that occurs here in this situation. Since you are receiving property instead of money in this type of transaction, the value of the disposal and acquisition needs to be determined by market value in Australian dollars ($AUD).
If the value of the cryptocurrency received cannot be determined, the capital proceeds from the disposal are worked out using the value of the cryptocurrency disposed of at the time of the transaction.
Your Financial Plan + Investing in cryptocurrency
If you acquire cryptocurrency for the purpose of holding it to dispose of at a later time for a profit, you will make a capital gain, which then has tax consequences. You will need to keep records of the acquisition costs and the selling costs, and the dates of each, to be able to work out the capital gain amount and if there are any capital gains tax (CGT) discounts that can be applied.
As with most other investments, if you hold the cryptocurrency for a period of greater than 12 months, you will be entitled to a CGT discount that will reduce the capital gain and therefore the tax consequences. if the disposal of cryptocurrencies results in a capital loss, the capital loss will be carried forward to be offset against future capital gains, or other capital gains in the same financial year.
Financial Reporting: Personal Use Assets + Cryptocurrency
When cryptocurrency is acquired and disposed of in a short period of time and is used for purposes of acquiring items for personal use or consumption, the cryptocurrency is likely to be considered a personal use asset. However, if the cryptocurrency is acquired and held for some time before it is used to acquire items for personal use or consumption, it is less likely to be considered a personal use asset and will attract capital gains tax consequences. Similarly, if not all of the cryptocurrency acquired is used to acquire items for personal use or consumption, it is less likely to be considered a personal use asset.
When you acquire cryptocurrency, you may have the intention to use it in a short period of time to acquire items for personal use or consumption, but this intention or your consequences may change. If the circumstances change and the cryptocurrency is ultimately holding for a longer period of time or the intention changes to holding it as an investment or to make a profit, then it is unlikely that any capita gain could be disregarded.
Tax Law: Loss or Theft of Cryptocurrency
If you lose your cryptocurrency private key or your cryptocurrency is stolen, you may be able to claim a capital loss. You may have lost your cryptocurrency because you have lost evidence of your ownership or you have lost access to the cryptocurrency. To be able to claim a capital loss, you must be able to provide the following evidence:
- When you acquired and lost the private key
- The wallet address that the private key relates to
- Costs incurred to acquire the lost or stolen cryptocurrency
- The amount of cryptocurrency that was in the wallet at the time of the loss
- That the wallet was controlled by you
- That you have appropriate hardware that sores that wallet
- Transactions to the wallet from a digital currency exchange that you hold a verified account with or is linked to your identity
Financial Records + Record Keeping For Cryptocurrency
It is imperative that goods records are kept on all transactions involving the acquisition and disposal of cryptocurrency, whether it is being used for investment purposes, personal use or in your business.
Details you need to record on cryptocurrency transactions, include:
- Date of the transactions
- The value of the cryptocurrency in Australian dollars ($AUD) at the time of the transaction
- Details of what the transaction was for and who the other part was that was transacted with
Other records that need to be kept include:
- Receipts of purchases or transfers of cryptocurrency
- Exchange records
- Records of any agent, accountant or legal costs
- Digital wallet records and keys
- Software costs in relation to managing your tax affairs
Good record keeping will make it easier to calculate any capital gains tax consequences that need to be included in your tax return for the financial year and to also satisfy the Australia Taxation Office (ATO) requirements. It is important to remember that when it comes to record-keeping and the bookkeeping of your cryptocurrency that there is no cloud-based accounting software to help you with this (yet). So the better the record-keeping, the easier it will be in the long run.
In general, you need to keep records for at least five years after the year in which the capital gains tax even happened. For capital losses that will be offset against future capital gains, there is no time limit on how long these can be carried forward for. Records for capital losses that are offset against a capital gain in a financial year, need to be kept for a further two years for individuals and small businesses, or four years for other taxpayers, after the year that the capital loss is being offset.
Trust the Accountants Geelong Turn to For Help
Canny Group has a team of accountants that are across the ever-changing cryptocurrency and can help with any questions that you may have in relation to lodging your tax returns and what needs to be included and where the capital gains tax will come into play. Get in touch today to have a chat with one of our team to be able to walk you through the process.