One of the most common questions clients are asking us now is: How is my crypto taxed?
Many people unfortunately don’t understand that a cryptocurrency is just like any other investment.
Whether you’re currently involved in a cryptocurrency like bitcoin, or considering buying a cryptocurrency, it’s important you understand the tax implications before investing. While the tax consequences will vary according to your circumstances, and it’s important to seek reliable advice, there are some fundamental concepts to keep in mind.
Getting started
No matter how you intend to use your cryptocurrency, you must keep accurate records of your buying and selling.
Your records must include:
- transaction date(s)
- the value of the cryptocurrency in Australian dollars
- what the transaction was for and who the other party was, including their cryptocurrency address.
Tax responsibilities
In Australia, cryptocurrency transactions are subject to both Income and Capital Gains Tax (CGT).
While your digital wallet can contain different types of cryptocurrencies, each one is counted as a separate asset for CGT.
We always say to think of your cryptocurrency as being similar to shares. If you buy shares in BHP, for example, you receive income from the dividends you are paid and a CGT applies when the shares are sold, regardless of whether the cash from the sale is deposited into your bank account or used to purchase other shares.
A Capital Gains Tax event occurs when you ‘dispose’ of your cryptocurrency. Disposal may mean that you:
- sell or gift cryptocurrency
- trade or exchange cryptocurrency
- convert cryptocurrency to fiat currency
- purchase goods or services with cryptocurrency.
If you have transacted with a foreign cryptocurrency exchange you may have tax responsibilities in another country.
Personal use assets
Personal use assets are not generally subject to tax on transactions.
Your cryptocurrency use may be regarded as a personal asset if it is kept or used to purchase personal items.
This means that capital gains/losses that arise may be disregarded. For example, buying cryptocurrency specifically to purchase an item that can be paid for using cryptocurrency could be considered personal asset use.
It’s important to know that this does not apply if you are buying cryptocurrency as an investment, as part of a profit-making scheme or as part of a business.
Keeping up to date
Cryptocurrency is a rapidly evolving area. It’s important to stay up to date and understand any developments in tax consequences. The ATO has a thorough guide to cryptocurrencies, which includes additional information, examples and links to help you.
Get in touch with us for further support. We can explain the ATO’s rules and regulations for your investments and provide guidance for your particular situation.
123 Financial Group can take the hard work and stress out of managing your finances with expert advice and assistance in all areas of financial planning, tax and accounting, mortgage broking and business advisory services.
