Cryptocurrency

Working out how tax applies to your crypto assets can be confusing as there’s a lot to consider. Crypto was originally developed as a digital currency to be used similar to money.  Currently in Australia crypto is not widely accepted as a form of payment and is more commonly used as an investment.

It is important to determine if you are a crypto investor or a crypto trader.

• Crypto investor – most people will fall into the crypto investor category. If you are buying, selling and trading crypto with intent to make a profit, you will most likely be an investor and your crypto activity will be subject to CGT.

• Crypto trader - carrying on a crypto trading business - including a crypto trading, mining or exchange business or a business selling non-fungible tokens. Additionally, if you receive crypto assets as payment for services provided by your business, the money value of the crypto assets is ordinary income of the business. The money value of the crypto assets is worked out at the time the income is derived. This income is reportable and you will be required to pay tax on it.

Tax treatment of cryptocurrencies for investors

Cryptocurrency for crypto investors is treated very similarly to shares, and is commonly regarded as a capital gains tax asset. A CGT event can occur when disposing crypto and can be in the following forms:

·         Selling crypto for a fiat currency

·         Exchanging for a different cryptocurrency

·         Gifting your crypto

·         Trading crypto

·         Using it to pay for good and services

Trading crypto from one digital wallet to another will not be considered a disposal as long as you maintain ownership over the crypto the whole time.

There are many types of cryptocurrencies (like there are many types of shares) and each is a separate asset for CGT purposes – if one crypto is disposed/traded to obtain another these will be viewed as separate assets. Crypto-assets are entitled to a 50% CGT discount if held for more than 12 months.

Gifting Cryptocurrencies

It is important to note the potential tax implications when cryptocurrency is gifted or received as a gift. Gifting crypto to another person/entity is another form of disposing of crypto and deemed a CGT event and may have tax consequences. Similarly, if you receive crypto as a gift this may be classified as a ‘purchase’. It is important to keep records of all gift transactions and the market values at the time of the event as this will be needed to determine any capital gains/losses for your taxable income.

Determine your CGT

Similar to other assets, when determining if you have a capital gain or loss you must calculate the purchase value, sale value and any fees incurred in Australia dollars.

For more information on how to work out and report CGT on crypto visit the ATO.