Cryptocurrency has undoubtedly experienced explosive growth over the last couple of years – but how does tax on cryptocurrency in Australia work?
With governments worldwide cracking down on managing the tax implications of cryptocurrency, you would likely have had to start reporting cryptocurrency on your annual tax return.
In Australia, it’s no different – if you’re buying, selling, trading and even mining cryptocurrency – the Australian Tax Office wants to know about it.
So what do you need to know?
Here’s a guide to how the tax on cryptocurrency in Australia works.
Do You Have To Pay Tax On Cryptocurrency in Australia?
Towards the end of 2019, the Australian Tax Office (ATO) began collecting records from various designated cryptocurrency services providers such as exchanges, brokerage services and payment facilitators to ensure that traders and investors were paying tax on their earnings.
In June 2020, the ATO sent letters out to crypto investors and traders around Australia indicating that disposing of cryptocurrency must be reported for capital gain purposes.
This data collection process established that all cryptocurrency transactions you make would leave an electronic record.
So, yes, you will have to pay tax on cryptocurrency in Australia.
When it comes time to lodge your annual tax return, the ATO will compare it with the data and records collected from the designated service providers (DSP). This way, they can ensure that your tax report matches your cryptocurrency transactions.
How Does the ATO Tax Cryptocurrencies?
In Australia, cryptocurrency is subject to two types of tax:
- Capital Gains Tax (CGT); and
- Income Tax.
Suppose you’re primarily buying and selling cryptocurrencies for investment purposes. In that case, the ATO considers you a crypto investor, which means that your primary goal is to experience long-term capital growth – similar to property or business investors.
So, if you would have to sell your cryptocurrency, your transaction would be subject to capital gains tax (CGT).
However, if you’re a trader, your primary purpose would be to make an income from buying and selling various cryptocurrencies. According to the ATO, that means that you’re conducting a business, and you’ll be subject to income tax.
When Does Capital Gains Tax Apply?
Like holding shares in a company, you’ll have to evaluate your capital gain each time you sell, trade or donate your cryptocurrencies.
The ATO doesn’t see cryptocurrencies as Australian or foreign currency. Instead, they consider it to be property. So, for capital gains tax purposes, cryptocurrencies are assets. You’ll be liable for CGT once you:
- sell a cryptocurrency;
- send a cryptocurrency as a gift;
- trade crypto for another fiat currency or crypto;
- convert to a currency, such as Australian dollars; and
- buy goods and services.
Here is a brief breakdown of how capital gains tax applies:
|Transaction||Does CGT apply?||Example|
|Buying cryptocurrency||Just like the purchase of investment properties or shares, there are no taxes involved if you buy cryptocurrency with your Australian Dollars.|
|Buying crypto-to-crypto||Using one crypto to buy another crypto is considered a capital gains tax event, so you’ll have to pay CGT. This includes trading with stable coins.
The ATO considers participating in ICOs (Initial Coin Offerings) or IEOs (Initial Exchange Offerings) as crypto-to-crypto transactions, so you’ll trigger CGT.
|Mary purchased one Bitcoin in June 2016 for $700. In August 2020, she decided to exchange half a bitcoin ($350) for 3 Ethereum. At this time, 3 Ethereum was around $1,650. So she made a capital gain of $1,300 from that transaction, so she triggers CGT.|
|Selling cryptocurrency||Selling your cryptocurrencies for Australian Dollars is considered a CGT event, and you’ll have to pay capital gain crypto tax.
Selling forked or chain-split cryptocurrencies also triggers CGT liability.
Selling air dropped coins is similarly considered a CGT event, and you’ll have to pay capital gains tax.
|Louis purchased one Bitcoin in May 2017 for $3,200. Bitcoin reached its all-time high in March 2021, so he ended up selling it for $75,500. That means Louis made a capital gain of $72,300, so he is liable to pay CGT.|
|Transferring cryptocurrency||If you’re planning on moving your cryptocurrency from one crypto wallet to another, you won’t be liable for any tax because the transaction is considered non-taxable. There are different types of crypto tax software, such as CoinTracker, which ensures that transfer transactions aren’t taxed.|
|Paying for goods and services with cryptocurrency||Paying for goods or services with your cryptocurrency is subject to the same tax treatment as selling crypto.
However, you’ll qualify for a personal use asset exemption if the transaction is used to purchase personal use assets that are less than $10,000.
|Gifts||Gifting cryptocurrency is considered the same as selling it, so if there’s a capital gain you’ll have to pay CGT. The sales proceeds would be the fair market value of the cryptocurrency on the date when the gift was made.||David purchased one Bitcoin in May 2017 for $3,200. He decided to give the coin to his mother in March 2020. At the time he gifted it, it was worth $8,400. So he would have to declare that he made a capital gain of $5,200 at the date that he gifted the crypto to his mother.|
Can You Reduce Your CGT liability?
If you hold onto the cryptocurrency you’ve purchased for more than 12 months before selling it, you can qualify for a 50% capital gains tax discount.
When Does Income Tax Apply?
People who engage with cryptocurrency activities are most commonly considered investors and will generally have to pay CGT in instances referred to in the table above.
However, if you’re trading in cryptocurrencies intending to make a profit, then you’ll be taxed as a business – so income tax applies.
For example, Adam considers himself a cryptocurrency trader for tax purposes. In his first year as a trader, he invested $620,000 in cryptocurrencies. He sells half of his purchases (worth $310,000) for $430,000. His total transaction fees for the year were $2,200:
$420,000 (sales) – $310,000 (less half of his cryptos) – $2,200 (fees) = $107,800
So, in his first financial year as a trader, Adam made $107,800 ordinary income, which must be declared in his income tax return.
Income tax will generally be applicable in the following circumstances:
- Airdrops: new coin types often send an audience free coins as part of a marketing campaign – the ATO considers this as ordinary income, and you’ll need to pay income tax on their value on the date that you received it.
- Mining: any proceeds you receive from creating a new bitcoin or altcoin is taxed as assessable income, and you’ll need to declare it in your annual tax return. If you sell these coins, they’ll also be subject to capital gains tax.
- Lending cryptocurrencies: any interest received from lending your cryptocurrency is considered assessable income – the ATO treats it similarly to mining.
What Are the Income Tax Rates for Cryptocurrencies?
As with other forms of income, any profit you make from trading your cryptocurrencies will be taxed at the marginal rate applicable for your tax bracket.
You can access the relevant tax brackets on the ATO’s website.
With the ATO clamping down on ensuring cryptocurrency investors and traders meet their tax obligations, it’s more important now than ever to ensure that you are keeping on top of things.
Before understanding what tax you’re liable for, you need to establish whether you’re a:
- trader; or
In most cases, people engaging in cryptocurrency activities are investors with the purpose of experiencing long-term capital growth – in which case you won’t be liable for income tax, but some circumstances will require you to pay capital gains tax.
If you are trading in cryptocurrency to make a profit, then you’ll have to pay income tax as well.
The rules are strict regarding what value you’ll have to pay tax on, so you must keep accurate records. Various apps automatically sync your transactions and apply ATO tax rules to calculate your tax liability, including:
Cryptocurrency is a lot to take in and can be confusing because it’s constantly changing. So, if you’re unsure about your tax obligations, it’s best to seek advice from an expert accountant or tax agent.
At Box Advisory Services, our small team of experienced accountants can help you navigate through your tax obligations and help you prepare your annual tax return.
To find out how we can help you, book a free consultation with us to assess your small business situation.