Whether it’s on a punt on the races, a same-game multi, or investing in crypto, Australians love to risk it for the biscuit. Over the past few years, Australia has climbed the ranks to be one of the countries with the highest levels of crypto adoption worldwide.
A 2022 survey conducted by Statista revealed that a remarkable 25.6% of adults in Australia owned some form of cryptocurrency, far surpassing the global average of 4.2%. With a significant adoption rate, the Australian government has been compelled to establish guidelines to address the tax implications associated with these digital assets.
In this course, we will delve into the intricacies of the crypto tax landscape in Australia, explore the taxation of various types of crypto transactions, offer insights into the factors that may need to be considered when managing crypto taxes and also help to guide you through the process of filing your crypto taxes in Australia. However, this course is for educational purposes only and should not be considered tax or financial advice. You should seek out the help of an accountant to obtain advice. By the end of this course, you will have an understanding of crypto taxation in Australia and the basics to assist you in navigating the complexities of managing crypto taxes.
The Evolving Crypto Tax Landscape in Australia
Over the years, the Australian Taxation Office (ATO) has issued many guidelines and updates to clarify cryptocurrencies’ tax treatment. In 2014, they released a guidance paper (’Tax Treatment of Cryptocurrencies’), stating that transactions involving cryptocurrencies should be treated as ‘barter arrangements’. If you used cryptocurrencies to buy goods or services, you would be liable for Capital Gains Tax (CGT) on any capital gain or loss.
Did you know?
Australia was one of the first countries to provide official guidance on the tax treatment of cryptocurrencies. Their release of the “Tax treatment of cryptocurrencies” in 2014 made the nation one of the early adopters in addressing the tax implications of digital currencies.
A few years later, in 2017, the ATO released a more comprehensive guide on cryptocurrency tax obligations, outlining that cryptocurrency transactions should be reported as part of an individual’s taxable income. In this guide, the ATO emphasised the need for individuals to keep records of all cryptocurrency transactions, including the date of the transactions, the value in Australian dollars at the time of the transaction, and the type of transaction (e.g., buy, sell, transfer, etc.). Additionally, the ATO stated that rewards earned from cryptocurrency mining are considered ordinary income and are, therefore, subject to income tax.
Does the ATO know about my crypto?
Now, you might wonder how the ATO knows whether or not you are accurately reporting your crypto transactions. In 2019, the ATO launched a data-matching program to gather data from cryptocurrency exchanges and cross-reference it with taxpayer records to detect discrepancies. This initiative aimed to ensure compliance with tax obligations and discourage tax evasion within the crypto space.
NOTE: Not only can the ATO track your transactions on centralised exchanges that you’ve KYC’d (Know-Your-Customer) on, but they also have methods to track on-chain transactions involving DeFi and NFTs through audit trail tracking and other blockchain scanning technology.
Tim Loh, Assistant Commissioner at the ATO, stated:
”We are able to match this data to individuals transacting in crypto assets, so don’t forget to include gains and losses in your tax return.”
In March 2020, the ATO sent letters to 350,000 individuals who have traded crypto, reminding them to correctly declare any gains or losses on the tax forms or else they would face penalties. Since then, tax authorities have continued to send out these letters in hopes that investors will file their crypto taxes accurately.
How does the ATO View Cryptocurrency Today?
As of today, the ATO classifies cryptocurrencies as property, which means it is a CGT asset for tax purposes. In other words, transactions involving cryptocurrencies may trigger capital gains tax events, requiring individuals to report and potentially pay taxes on the profits made from their crypto activities.
Capital Gains Tax
Capital gains tax applies when you sell, trade, or exchange your crypto holdings for fiat currency or other cryptocurrencies.
Let’s look at some fictitious examples to better understand how CGT may apply in different scenarios:
- Crypto to Crypto Swaps:
- Suppose you bought 1 Bitcoin for $10,000 on Swyftx
- You later exchanged it for 10 Ethereum when the value of Bitcoin was $20,000.
- In this case, you would be liable for CGT on the capital gain made from Bitcoin’s appreciation in value. The ATO requires you to calculate the Australian dollar value of both the acquisition and disposal events and report the capital gain accordingly.
- Capital Gains = Proceeds – Cost Base = $20,000 – $10,000 = $10,000
2. Selling Crypto to Fiat:
- Suppose you bought 1,000 Ripple (XRP) for $1,000 on Swyftx
- You later sold them for $5,000 in Australian dollars when the value of Ripple had increased.
- You must determine the capital gain 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
It’s important to note that certain crypto transactions may be classified as non-taxable events. These can include:
- 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.
- 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.
Australia’s crypto tax landscape is based on the ATO’s classification of crypto as property and, thereby, a CGT asset. Individuals and businesses must report their crypto transactions, calculate capital gains or losses, and pay CGT when disposing of cryptocurrencies. By understanding the guidelines and keeping accurate records of transactions, crypto users can ensure compliance with tax obligations and avoid potential penalties or audits.
In the next chapter, we will explore the tax consequences for those participating in NFTs, DeFi, staking, airdrops, forks & mining, and dive into the differences between investors & those trading as a business.
Authored by Crypto Tax Calculator
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