Sooooo we hate to burst your bubble but the ATO knows you have crypto and they are expecting to see it being reported in your income tax return if you dispose of it, even if you are only having a dabble. Here are some things you absolutely need to know.
Do I have to pay tax on gains made from Cryptocurrency trading?
Yes. Despite what you may read in some Facebook groups, crypto trading is not tax-free income hidden from the government’s view. The ATO considers that crypto is a form of property subject to Capital Gains Tax and Income Tax.
What does the ATO know?
If you’ve bought, sold, or held cryptocurrency with an Australian Designated Service Provider (DSP), the ATO likely already has the data on your crypto transactions. Australian exchanges and wallets abide by Know Your Customer laws. This means the ATO has access to the information you provided when signing up for these services and will be able to identify transactions that you’ve made, and may even send you a letter saying they know you have crypto.
If we are your tax agent, we also get a notification that you have held or sold crypto during the previous income year. There is no hiding from us either! Not that you would ever consider doing that anyway right 😉
So is it capital or income?
Making the assessment of capital or revenue treatment is important as it impacts how you calculate your gains/losses and the resultant tax payable. Heads up, it’s not your choice.
If your crypto is mainly personal and the majority of earnings are from long-term gains it will likely be treated as capital and capital gains tax will need to be paid.
For it to be treated as revenue income you would need to be considered a trader. The ATO defines a trader as someone who mines or trades crypto in an “organised, business-like manner”. Here are a few signs that you may fall into this category:
Significant capital investment
A focus on generating profits in the short-term
A large volume of trades on a daily or weekly basis
Documentation and assets that suggest business-like activity such as revenue projections, an Australian Business number, keeping accounting records
There are more such as education, hours spent, sophistication and scale, etc
If you are unsure which category you fall into, please contact us and we can evaluate your circumstances and make a recommendation.
So what do you need to declare? When you dispose of cryptocurrency. This happens when you
Sell
Trade for other cryptocurrency
Gift
Use to purchase
Convert it to a currency such as $AUD
How are the profits/losses calculated?
As a majority of clients we work with fit within the capital category this content will focus on capital, ie, not trading.
The capital gain/loss will be the difference between the $AUD value of the crypto at the time you disposed of it minus the $AUD value of the crypto at the time it was acquired.
If you made a capital gain on a particular crypto and you held it for greater than 12 months you will receive a 50% capital gains tax discount but note that any gross capital gain will first be offset against capital losses before discounts are applied.
So what do I need to report in my Tax Return?
All of the disposal transactions in that financial year.
If you made an overall net capital gain, this will be added to your assessable income and will be taxed at your marginal tax rate.
If you made an overall capital loss, you will not be able to offset this loss against other income in your tax return. Instead, this capital loss will be carried forward to future income years and can be offset against future gross capital gains.
We also want to give you the heads up that if we are calculating the gains/losses for you there will be an added cost in preparing your income tax return depending upon the volume of transactions.
What information do you need to provide your tax agent?
Dates for each individual crypto transaction
Market value of each one your assets at time of sale and time of purchase
Amount of each coin sold
You should be able to download this information from the trading platform you are using.
Is there software that assists with keeping track?
Yes! There are a number of software products that have this capability.
We have used Koinly (https://koinly.io/) which allows you to integrate your exchange wallets and has a free element to it – Woohoo!
What if I hold crypto without disposing of it?
No capital gains tax event will occur, phew, and there will not be anything to report in your tax return for that year but you still need to keep the details of your transactions handy so you can calculate the gain/loss when disposed of.
What if my crypto is hacked or stolen?
Unfortunately this does happen, we have seen it. If you’ve lost crypto assets as a result of a hack or a theft in the past tax year, you may be able to claim a capital loss. The ATO requires proof that your cryptocurrency has been lost and cannot be replaced though.
So what if I don’t declare?
Don’t even think about running the gauntlet on this one. The ATO consider this tax fraud or evasion and there is no time limit for conducting an audit. With what the ATO already knows it would be seriously risky business and they are looking closely at these transactions so audit activity is high.
Well you got to the end CONGRATULATIONS! We hope this has answered some of your questions regarding the tax issues relating to crypto. If you have any further questions then feel free to call us to discuss.
Disclaimer: This blog is for general informational purposes only. For advice on your specific situation, please contact a tax professional, ie us 😊