Wondering how – or even if – cryptocurrency is taxed in Australia this financial year?
The cryptocurrency market took the world by storm five years ago and its momentum has continued unabated in recent months. It seems almost every trend or controversy in the investment sector leads back to crypto.
Unfortunately, cryptocurrency can be extremely volatile and not just in terms of investment: its very definition is loose at the best of times. We are only just now seeing proper regulations being introduced, and these practices could affect your business even if you’re not invested in Crypto.
Is It Taxed? An Overview
First things first: yes, cryptocurrency is taxed by the Australian Government.
The ATO considers cryptocurrency as an asset – it is an investment, after all. As it is an asset that is capable of generating income, the ATO also considers cryptocurrency subject to income tax and capital gains tax.
Interestingly enough, the ATO considers cryptocurrency – Bitcoin, Ethereum, even Dogecoin – as property, and not as money or foreign currency as seems to be the widely-held belief.
The ATO insists that you keep records of all cryptocurrency transactions in order to avoid complications come tax time. You should also be aware that tax on cryptocurrency is not just an Australian practice: if you trade in foreign tokens, you may be subject to facing tax in another country.
How The ATO’s Capital Gains Tax Defines Cryptocurrency
All assets are subject to capital gains tax and cryptocurrency is no exception.
You will be liable for CGT upon disposal of any crypto tokens in your possession. The ATO defines disposal of tokens as:
- The exchange of crypto tokens for cash, goods or other tokens (this includes selling)
- Gifting crypto to another individual or party
- Converting crypto to another currency (whether Australian or foreign)
- Purchasing services using cryptocurrency
A capital gain is triggered when you make a profit from trading cryptocurrency in this case.
For example: if you were to buy a token for $500 and then sell the same token a week later for $1,000, you will have made a $500 profit – that same $500 is considered taxable by the ATO.
Conversely, if you were to lose $500 in that same scenario then you may be eligible to deduct that loss from any future capital gains that same tax year.
Important: if you are in the habit of trading cryptocurrency and have held a token for longer than twelve months before disposing (selling) it, then you may be eligible for up to a 50% capital gains tax discount. Contact our accountants to find out if you meet the requirements for your investments!
Define Yourself To Save On Tax This 2022
For those who have dabbled in crypto, make a living off it, or are simply interested, it would behoove you to understand the difference the ATO defines between an investor or trader.
The ATO – for tax purposes – categorizes everyone involved in Crypto as either an investor or trader. Both of these categorisations carry different tax obligations.
An investor typically buys tokens with the aim of holding them over a long period of time. The majority of Australians involved in crypto are investors. The ATO requires investors to pay capital gains tax, but not as much income tax as compared to a trader.
A trader makes their living off of cryptocurrency exchanges, whether as a sole trader or through a business. Regardless, traders typically don’t pay CPT but are almost always required to pay income tax; the ATO requires comprehensive documentation, too, come tax time.
Invest In Yourself First
Discerning whether or not your crypto investment is taxable or subject to a CPT discount can be confusing and very time-consuming – particularly if you run a business. The A Firm’s expert finance squad has decades of extensive experience in making sure your investment taxes are accurate and ready come tax time. So book in a call with us today!