Capital Gains Tax in Australia

When does Capital Gains Tax (CGT) apply?  

Capital gains tax can apply when you dispose of your cryptocurrencies. The ATO has released comprehensive web guidance on what is considered a disposal event, but some common actions can include selling crypto for fiat, swapping crypto to crypto and trading NFTs for crypto. In addition, more complex actions like paying gas fees or interacting with smart contracts can also be considered CGT events.

Let’s look at some fictitious examples to better understand how CGT may apply in different scenarios:  

1: Crypto to crypto swaps:    

2: Selling crypto to fiat:   

• Suppose you bought 1,000 XRP for $1,000 on Swyftx   
• When the value of XRP later increased, you sold your 1,000 XRP for $5,000 
• In this scenario, the capital gain is determined by subtracting the acquisition cost ($1,000) from the sale proceeds ($5,000). The resulting capital gain is then subject to CGT. 
• Capital Gains = Proceeds – Cost Base = $5,000 – $1,000 = $4,000   

Fees 

Typically, when purchasing or selling crypto, a user will incur a fee. The ATO provides guidance on how crypto transaction fees are treated under CGT rules. For individual investors, the fees are generally included in the cost base when acquiring an asset and deducted from the capital proceeds when disposing of a crypto asset. This is illustrated in the simplified example below:

1. You buy 1 ETH for $1,000 and pay a .01 ETH fee.  
   • Price of 1 ETH = $1,000 
   • Fee of .01 ETH = .01 x $1000 = $10 
   • Total Cost Base = $1,000 + $10 = $1,010 
     
2. You sell 1 ETH for $2000 and pay a .01 ETH fee 
   • Proceeds from sale = $2,000  
   • Fee = .01 x $2,000 = $20 
   • Total proceeds reported on your taxes = $2,000 – $20 = $1,980 

Fees paid in fiat (such as AUD) are treated in a similar way, and are also added to the cost basis and deducted from the proceeds, the same way as crypto fees.  

When CGT might not apply immediately

It’s important to note that certain crypto transactions may not trigger an immediate CGT event. 

These can include:   

• Transferring crypto between wallets you own: Transferring crypto from one wallet you own to another is generally not a CGT  event. However, if any fees are paid in crypto as part of the transaction, those will likely be CGT transactions, subject to taxation. 
• Receiving crypto as a gift: If you receive cryptocurrency as a gift, CGT does not apply at the time of receipt. However, if you later dispose of the gifted cryptocurrencies, you may be liable for capital gains tax on the difference between the market value when you received the gift and the disposal value.   
• Donating to charity: Donating cryptocurrencies to eligible charitable organisations may qualify for tax deductions; therefore, these disposals may be tax exempted.  
• Personal use: If you acquire cryptocurrency for personal use or consumption (e.g., buying a cup of coffee with Bitcoin), you may not be subject to CGT as long as the value is less than $10,000. However, the Bitcoin can’t have been bought for investment purposes and then used for transactions. This may be difficult to differentiate, and you should talk to your accountant before relying on this as the ATO has very strict criteria to avoid people gaming the system.   
• Purchasing crypto with fiat: Simply buying cryptocurrency with fiat currency is not a taxable event. The asset does not become subject to taxation until it is later disposed of.  The ATO has strict criteria for this rule, including that the crypto was not acquired primarily for investment purposes. Determining if an asset meets the personal use criteria can be complex, and seeking professional advice is recommended.

In the next section, we will explore the taxable implications of mining and staking cryptocurrency.