TL;DR
- Tax treatment can have a large impact on your investment returns.
- Keep accurate records – exchanges used, wallet addresses, transaction type.
- Tracking your portfolio closely is a good idea.
- Either ordinary income tax (traders) or capital gains tax (investors) will apply to your crypto, unless they are “personal use assets”.
- Most likely you are into crypto to make gains, so personal use is unlikely (unless you are using DOGE to buy Telsa merchandise).
- Be aware the ATO has a data matching program in relation to crypto.
- Keep up to date and get in touch if you have any questions or need help tracking your portfolio.
In Detail
Whether you are currently involved in cryptocurrency investment, or considering buying cryptocurrency, it’s vital to explore the tax implications.
While taxes will vary according to your circumstances, and it’s important to seek professional advice, there are some basic tenets you can start with.
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
- details of crypto exchanges and wallets used
- the value of fiat dollars (e.g. AUD) transferred to invest in crypto
- the type of transaction and details of the other party, for example, staking on an exchange or DeFi protocol
Tax responsibilities
In Australia, cryptocurrency transactions can be subject to both income and capital gains taxes.
If you are a frequent trader of crypto or run a crypto based business, you may be taxed on income basis – i.e., taxed on your trading profits and losses.
If you are a long-term investor, you are more likely to be subject to capital gains taxes. In this scenario, each cryptocurrency is treated as a separate asset for Capital Gains Tax (CGT).
A Capital Gains Tax event occurs when you ‘dispose’ of your cryptocurrency.
A disposal may occur where you:
- sell or gift cryptocurrency
- trade or exchange cryptocurrency
- convert cryptocurrency to fiat currency
- purchase goods or services with cryptocurrency
- use your cryptocurrency to provide liquidity to DeFi liquidity pools
If you have transacted with a foreign cryptocurrency exchange you may also have tax responsibilities in another country. It is recommended you conduct your own research before using a particular exchange.
Personal asset use
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 would generally be difficult to treat crypto as a personal use asset where you are ‘hodling’ or trading regularly. One example of personal use may be using DOGE coin to buy Tesla merchandise.
Data matching
You should assume that the ATO has some data in relation to your crypto transactions for the 2021 to 2023 income tax years.
The ATO has provided notice of its intent to undertake data matching on crypto transactions for these years.
Therefore, it is important to ensure you calculate gains and losses accurately in the event the ATO reviews your tax return.
Keeping up to date
Cryptocurrency is a rapidly evolving area. The ATO has a guide, including examples and links for additional information to help you.
Get in touch. We can explain the ATO’s rules and regulations for your investments and provide guidance for your situation.