If you’re buying and selling cryptocurrencies in Australia, you need to know your tax obligations, the ATO’s position on cryptos and a couple of key ideas to help keep your crypto investing and trading on the right side of the law.
When cryptocurrencies burst onto the scene in 2009 with Bitcoin, governments and central banks were quick to deride and discredit the strange new financial instruments.
It’s wasn’t money, they said.
It’s a ponzi scheme, they said.
Cryptos would never threaten to destabilize nor replace ‘real’ money.
The financial establishment largely elected to ignore cryptos in the hope they’d go away.
But go away cryptos did not.
More than a decade since their inception, cryptos look more than ever as though they’re here to stay.
A quick glance at Coindesk and you’ll see that cryptos and the blockchain technology behind them are edging ever closer to the hallowed ‘mainstream’ adoption:
The institutions and authorities which a few years ago seemed to cover their ears at any talk of them, are now actively seeking to make money on cryptos, too.
In late July, Bitcoin charged back above $US10,000.
According to analytics from Glassnode, that drove the number of Bitcoin addresses worth more than a million dollars 38% higher to about 18,000.
That’s 18,000 millionaires who may never have grown so wealthy had cryptocurrencies not emerged.
And when citizens gain wealth — from work, investing, selling property, whatever it may be — the government tends to take a cut.
Despite remaining skeptical about cryptocurrency’s legitimacy, many governments are now creating new tax legislation in the blockchain space.
That’s the case in Australia and that’s the topic of this guide to crypto taxation.
Of course, we’re not tax accountants or lawyers, and none of what follows constitutes personal financial advice.
If you’ve been buying and selling crypto and you’re unsure about your tax obligations, this article is a good place to start.
Do You Have To Pay
Tax On Crypto Gains?
The Australian Taxation Office doesn’t regard cryptos as money or foreign currency.
Rather, it sees them as a form of property.
And like property in Australia, they expect you to pay tax on any capital gains you make from investing in this property.
The ATO says that ‘transacting with bitcoin is akin to a barter arrangement, with similar consequences’.
Those consequences are that you need to pay tax on any gains you make.
This tax is called Capital Gains Tax (CGT) and is applied equally to cryptocurrencies as it is to other goods such as real estate, shares, and some collectibles or items.
CGT is not a special tax as such, and is simply considered part of your ordinary income you might earn from salaried employment.
The main difference is that capital losses (where sale of an asset results in a net loss) cannot be offset against your ordinary income — only other capital gains, either in that financial year or in the future.
Another important point (and crucial for planning your trades) is that if you hold a CGT asset for 12 months or more, the CGT rate is reduced by 50%.
Example 1: Short Capital Gains
Alice wants to invest in cryptocurrencies, and purchases 1.0 Bitcoin on 1st January for $5,000.
Three months later on 1st April, she sells her Bitcoin for $6,000, and has made a profit of $1,000.
This net gain of $1,000 is added to her ordinary income and charged at the progressive marginal rate for her bracket.
Example 2: Long Capital Gains
Bob purchases 1.0 Bitcoin on January 1 for $5,000.
Fourteen months later on April 1 the following year, he sold his Bitcoin for $8,000 AUD, and has made a profit of $3,000.
However, he has held the asset for more than 12 months and is eligible for the CGT discount of 50%.
Thus the net gain of $3,000 is reduced by half and $1,500 is added to his ordinary income and taxed at the marginal rate for his bracket.
It was folk wisdom (or perhaps wishful thinking) in the early days that only crypto to fiat trades would be applicable for CGT.
This is not the case.
Crypto to crypto tax rules are the same.
The only difference is that you must perform a fair market evaluation of the asset’s worth at the time of the trade in Australian Dollars.
This might be already provided on the trades list for the exchange you use. Or, you might need to use a well-regarded asset tracking site or API to find the backdated asset price.
Example 3: Crypto to Crypto Trades
Charlie purchases 1.0 Bitcoin on January 1 for $5,000.
On February 1, he traded his Bitcoin for 650 Litecoin. On this day, 1 Litecoin is worth $10 AUD. So for taxation purposes, he has sold his Bitcoin for 650 x $10 = $6,500.
The same process then applies. This net gain of $1,500 is added to his ordinary income and charged at the progressive marginal rate for his bracket.
Importantly, $6500 also becomes the cost base for his Litecoin going forward.
When Charlie sells these Litecoin later on, the purchase price is considered to be $6,500.
Does This Mean Tax Authorities
Are Admitting Cryptos Are ‘Money’?
Just because the ATO taxes crypto-to-cash and crypto-to-crypto transactions, doesn’t mean the government is making a declaration on the broader role of cryptos in the financial system.
Nor does the ATO appear to be ‘targeting’ crypto traders to penalize them for making money on the controversial and commonly misunderstood ‘asset’ class.
Australia’s crypto tax policy is similar to the legislative requirements you have as an individual if you collect and resell luxury cars for the purpose of making a profit.
Each sale is a CGT disposal and you need to pay tax on that event.
The ATO has for many years now consulted with experts and the public on the taxation treatment of cryptocurrencies like Bitcoin.
Although the laws were perceived by many to be unclear and still in active discussion, since 2014 the ATO guidelines have been very clear.
My Experience: How To
Minimize Crypto Tax Stress
Navexa’s crypto consultant, Aaron Boyd, shares his personal experience on paying tax on his crypto profits:
Having been involved in the crypto space since 2013, frankly I was expecting blockchain assets to remain a grey area for some time and not really require any action.
Nonetheless, I followed a comprehensive tracking schedule from day one.
This helped me backtrack and ultimately submit amendments for previous years where (at the time) I wasn’t sure exactly how to treat crypto assets.
Here are my three biggest tips:
- Record everything. The important information is the action you took (deposits, trades, withdrawals) and the date. If possible, addresses and on-chain transaction IDs are very useful as well. If you have most of this information, you can always calculate your tax liability later on.
- If your situation is complicated, use a blockchain taxation specialist. Crypto Tax Australia has been instrumental in getting my data clean and across the line for a number of years and I can recommend their services . They have been featured on Nugget’s News ( https://youtu.be/1mnn2r1Ysv8 — and I recommend watching this interview ) and have a deep technical understanding of all the various blockchain edge-cases.
- Use software that can make your life easier. Originally, I was using bespoke spreadsheets, but this only gets you so far and is incredibly time-consuming, especially if you are a frequent trader. Today, there are many crypto tax software suites that perform exchange imports, automatic price discovery, data cleanliness, tax reporting, and so on. In the past I’ve use Cointracking.info, but there many other great resources now (https://tokentax.co/, https://koinly.io/).
Navexa — the platform hosting this blog post — is one such software service that can help you get your crypto taxes in order.
Navexa’s portfolio tracker lets you track your crypto holdings and trades in fine detail, then auto-generate a comprehensive tax report for a given time period.
From there, you can either report directly to the ATO at tax time, or work with a specialist crypto tax accountant to finalise your tax report before submitting.