Cryptocurrencies have swept the markets off their feet – and the tax collectors have started to catch up!
Since December 2014, the ATO has published official guidelines on how crypto is taxed under the existing tax law.
One of the key principles of wealth management is managing tax obligations. With the rise and rise of cryptocurrencies into the mainstream of investing, learn more about how cryptocurrencies are taxed in Australia.
Under Australian tax law, crypto isn’t a currency.
The ATO doesn’t classify cryptocurrencies such as Bitcoin as a currency, but instead as assets. This means you will need to pay CGT on your crypto asset appreciation.
If you buy and sell cryptocurrencies as a private investment for your future, with most earnings coming from long-term gains, then you are an investor and will be subject to CGT.
The capital gain or loss on your cryptocurrencies is calculated from the value of the crypto asset, priced in AUD, at the time of disposal. The rate of the CGT depends on your marginal income tax bracket.
If you have held your crypto assets for longer than 12 months, then your capital gains will be eligible for the 12-month CGT discount, the same as for any other asset class where CGT applies.
Many different types of transactions count as disposal and therefore a CGT event. For each, you will need to assess the capital gain or loss at each instance.
Any form of disposal of your crypto assets counts as a CGT event – including selling or gifting.
So if you sell your crypto holdings into AUD fiat currency, or swap one cryptocurrency for another, or use cryptocurrencies to pay for goods or services – these are all examples of CGT events where CGT will be applied to the capital gain or loss.
A swap is considered a CGT event where one cryptocurrency is disposed of and another is acquired. The ATO holds this view because each cryptocurrency is classed as a different CGT asset.
However, transferring your crypto holdings between wallets and exchanges are not disposals, so there is no CGT owed.
If you receive crypto assets as a gift, you do not have to pay any CGT on this. However, as the gifter is essentially disposing of the asset, even if they are not receiving any payment for the gift, they will need to pay CGT on the capital gain earned while the asset was in their possession.
If the receiver later gifts the crypto on, again, they will owe CGT on the asset, even though they never paid to receive the crypto assets in the first place.
People who are not an Australian resident for tax purposes – for example, some New Zealanders on their temporary visas – are not taxed on any foreign income earned.
If your crypto holdings are moved from an Australian domiciled exchange to an overseas-based one, this counts as a disposal event, and your capital gain or loss will be calculated at this point.
Currently, there is very little guidance from the ATO as to the tax treatment of trading in crypto margins, options, futures and contracts.
Talk with the specialist crypto accountants at Valles about how crypto trading could affect your tax obligations.
Investing in cryptocurrencies is a highly specialised part of the market – and to make the most of your opportunities, you need equally specialised crypto accountants.
The most reliable crypto accountants are fellow crypto investors, just like Greg and the team at Valles Accountants. To talk with the specialists who are both chartered accountants and active crypto investors, contact us today to discuss the possibilities.