If you are amongst the estimated 600,000 taxpayers that have invested in cryptocurrencies or are attracted to the idea, then this month’s column should be of interest to you.
On 28th May 2021 the ATO issued a statement addressing Australia’s cryptocurrency investors and explaining how the ATO will be accessing customer data from all Australian digital currency transactions as far back as 2014. In determining tax liability, the ATO is collecting data from crypto exchanges and comparing it to amounts entered in previous tax returns.
The ATO reminded Australian crypto users to report all gains on their tax return. Approximately 100,000 taxpayers will receive a warning letter outlining their obligations and asking them to review their previously lodged returns and a further 300,000 are expected to be prompted as they lodge their 2021 tax returns.
Failure to declare crypto gains can attract a penalty of 75% of the outstanding liability plus the tax itself and interest on the short fall. However if you realise you have made a mistake and correct your return, the ATO will significantly reduce penalties. If you do not take such action when reminded, you face the risk of an audit by the ATO.
How is cryptocurrency taxed?
The ATO does not regard bitcoin and other crypto currencies as money, nor as foreign currency. Instead the ATO classes crypto as property and therefor as an asset for capital gains tax purposes. However crypto can also be viewed as and taxed as ordinary income depending on your intentions and setup.
Are you an Investor or a Trader?
a) Investor
You will be classed as an Investor if you buy and sell crypto as a personal investment stock with the objective of building wealth over an extended period of time and with the intention of making a profit from a long term capital gain. It appears that most Australian crypto users fall into this category and accordingly any profits will be subject to Capital Gains Tax.
Investors who hold their crypto for more than twelve months will be able to access the 50% CGT discount.
A Capital Gains Tax Event will occur when:
- You sell your crypto
- Exchange crypto for crypto
- You convert crypto to Government issued currency
- Gift your crypto
- Spend your crypto currency when accepted by a seller of goods or services
Calculating your Capital Gain or Loss
Your capital gain or loss is the difference between your sales or disposal proceeds converted to A$ less fees charged for the sale and your purchase cost converted to A$ plus fees.
If you have made a capital loss this can be offset against capital gains made on other crypto, or capital gains on share investments or property investments or carried forward to subsequent years. You cannot however deduct a net capital loss from your other ordinary taxable income.
If you make a capital gain and you have carried forward losses from prior years you must firstly offset the losses against the current year capital gain(s) before applying the 50% discount applicable only if you have held the investment for more than 12 months.
b) Trader
You will be classified as a trader if you are using crypto as a means to generate an income stream and operating along business lines by trading, forging, mining, running a crypto exchange or regularly buying and selling for short term gains.
The income you earn from trading crypto is taxed as ordinary income and will attract tax at the rates applicable if trading as an individual or at company rates if you are trading as a business through a company structure.
In order to work out your income as a trader you must keep accurate records in A$ of purchases and sales, using conversion rates applicable at the date of the purchase and sale.
Other crypto transactions taxed as ordinary income
- Getting paid in crypto (like salary)
- Staking rewards (like dividends)
- Airdrops (like bonuses)
- DeFi interest(like bank account interest)
- Referral fees(like commission)
Other crypto transactions that are tax free in Australia
- Buying crypto
- Holding crypto
- Token & coin swaps
- Acquiring crypto as a gift
- Acquiring crypto from hobby-level crypto mining
- Transferring crypto between your own wallets
- Buying goods and services under $10,000 if it’s a personal use asset
- Donating crypto to registered charities
TIP No 1
The best tip for nailing your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it is just your wallet address.
TIP No 2
Google the business name “Koinly” and locate their excellent publication “Australian Crypto Tax Guide 2021” for more information and tools to assist you in getting your crypto information together and how to enter the relevant information into your tax return if you are a self- lodger or to forward to your accountant.
Disclaimer:
The content of this article is not intended to be relied upon as professional advice and should not be used as such. If you have any questions you should consult a registered tax agent.
Brian Spurrell B A, B Com, Dip Ed, FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
PO Box 143 Warrandyte 3113 Ph: 0412 011 946
Web: www.ptasaccountants .com.au