Cryptocurrency Taxation In Australia – A Simple Guide

Cryptocurrency continues to be rapidly adopted in Australia. In particular, it has been reported that more than 800,000 Australian taxpayers have been identified as having transacted in digital assets in the last three years (which include cryptocurrency), with a December 2021 survey finding that more than 28% of Australians surveyed owned crypto-assets.

In light of the increased popularity of cryptocurrencies, the ATO has become increasingly concerned that more taxpayers may not comply with their income tax and GST obligations with these transactions. In particular, the ATO has previously highlighted that:

• Many taxpayers appear to have a misconception that cryptocurrency gains are tax-free or only taxable when their holdings are cashed back into Australian dollars, which can lead to them not disclosing these gains in their tax returns; and
  
  
• The complex nature of cryptocurrency trading can lead to taxpayers being uncertain about how to treat their cryptocurrency transactions for tax purposes.
  
  

As a result, the ATO has recently escalated its compliance focus on cryptocurrency transactions. Let’s find out more about cryptocurrencies.

Tax outcomes of using and transacting with crypto assets

You can acquire or dispose of a crypto asset on a crypto trading platform, or directly from a digital or hardware wallet. You can exchange crypto assets for other crypto assets, fiat currency or goods and services.

The way you use or transact with crypto assets will determine how you treat them for tax purposes. The most common use of crypto assets is as an investment (investors acquire and hold crypto assets to make a financial profit from holding or disposing of them).

As a general rule, for investors:

• Crypto assets are taxed as CGT assets, including for self-managed super funds (SMSFs) investing in crypto
• Rewards for staking crypto are ordinary income for tax purposes.

Businesses transacting in crypto assets may need to account for them as trading stock or ordinary income (that is, on the revenue account rather than as investment capital gains or losses). In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income or a deductible expense depending on the nature of the transaction.

In some circumstances, crypto assets are not kept mainly for investment but for personal use. Where specific conditions are met, crypto assets are not subject to CGT because they are considered to be personal use assets.

How to work out and report CGT on crypto

How to work out and report capital gains tax (CGT) on transactions involving crypto assets.

When capital gains tax applies

The most common use of crypto is as an investment, in which case the crypto asset is a capital gains tax (CGT) asset.

If you acquire a crypto asset as an investment, transactions such as disposal or exchange are a CGT event and you may make a:

• Capital gain
• Capital loss, which can reduce capital gains you make.

You can't deduct a net capital loss from your other income. You may be able to reduce capital gains using the CGT discount if you hold your crypto asset for at least 12 months.

If you hold the crypto asset as an investment, it will not be exempt from CGT as a personal use asset. To work out if you made a capital gain or capital loss from each CGT event, keep records of your transactions. You will make a capital gain if the proceeds from the disposal of your crypto asset is more than its cost base.

Working out the timing of the CGT event

In general, a CGT event happens when you dispose of a CGT asset. For the purposes of crypto assets, that may be when you:

• Sell a crypto asset
• Gift a crypto asset
• Trade or exchange one crypto asset for another
• Convert a crypto asset to Australian or foreign currency
• Buy goods or services with a crypto asset.

There are other CGT events, such as the loss or destruction of an asset, or creating contractual or other rights.

The type of CGT event that applies to your crypto asset transactions may affect:

• The time when the CGT event happens
• How you calculate your capital gain or loss.
  
  

Calculating your CGT

As with other CGT assets, if your crypto assets are held as an investment, you may pay tax on your net capital gains for the year. This is:

• Your total capital gains
• Less any capital losses
• Less your entitlement to any CGT discount on your capital gains.

Before you calculate CGT on your crypto assets, you will need to convert the value of the crypto assets into Australian dollars. You can work out your CGT using our online calculator and record keeping tool.

Talk to our accountant, and we can help you understand the tax aspect of the crypto investment.