How Australia Taxes Cryptocurrency: A Guide for Individuals and Businesses

As a record number of Australians buy, sell, or simply hold cryptocurrency, who's that waving from the sidelines, keen to jump in? Just our mate, the ATO, ready for a yarn.

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Crypto transactions are subject to taxation in Australia, and it's crucial to stay informed so you’re not left scratching your head while preparing your tax return at the end of the year.

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In this guide, we'll break down everything you need to know about crypto taxes, from the events that trigger tax obligations to how to report your crypto transactions accurately. So, whether you're a seasoned crypto trader or just dipping your toes into the digital currency world, read on to ensure you're on the right side of the taxman.

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Are you a business worried about crypto taxation? Skip ahead to our business guide. Otherwise, keep reading for what you need to know as an individual.

Taxable events

Tax obligations are created when various events involving your digital assets occur. These events include:

• Buying Crypto: Purchasing crypto with Australian dollars or other fiat currencies can lead to a taxable event. The tax implication arises from the potential capital gain or loss when you eventually sell or trade that crypto.
• Selling Crypto: Selling or disposing of crypto, whether for Australian dollars or another cryptocurrency, is a significant taxable event. You need to calculate the capital gain or loss based on the value at the time of the transaction.
• Trading Crypto: Trading one crypto for another is also a taxable event. This means you'll need to calculate the capital gain or loss when you make such trades.
• Receiving Crypto as Income: If you receive crypto as income, for example, as part of your salary or through mining activities, it's considered taxable income. You'll need to report this as part of your total income when filing your tax return.

The two ways the ATO classifies crypto

The ATO differentiates between two main categories: crypto as assets and crypto as personal use items.

I. Crypto as assets

Some individuals in Australia use crypto as investments or stores of value, similar to how they might invest in stocks or real estate. If you're holding crypto as an investment, it's generally treated as an asset for tax purposes. This means that when you sell or dispose of your crypto, you might be subject to Capital Gains Tax (CGT). The CGT rules apply, and you'll need to calculate any capital gains or losses based on the difference between the acquisition cost and the selling price.

II. Crypto as personal use items

On the other hand, if you're using crypto primarily for personal transactions and not as an investment, the ATO may consider it a personal use item. This classification is more relevant for situations where you're using crypto for everyday purchases, like buying a cup of coffee or paying for a meal. The good news is that if your crypto transactions fall into this category and the value of the crypto is less than AUD 10,000 at the time of the transaction, you generally won't have to worry about CGT. It's considered similar to using cash for small purchases, and no tax implications usually apply.

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It's important to note that the ATO's classification of your crypto use depends on the intention behind your transactions. Keeping clear records of your crypto activities and their purposes can help you determine the appropriate tax treatment. These rules and classifications can also change, so staying informed about the latest ATO guidance is essential to ensure compliance with tax regulations.

Capital Gains Tax (CGT) when you sell or dispose of crypto

CGT is a tax applied to the profit made from the sale or disposal of assets, including crypto. When you sell or trade crypto, you may incur a capital gain or loss. Here's how it works:

Calculation of capital gains and losses

To calculate your capital gain or loss from crypto transactions, you generally follow this formula:

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Capital Gain (or Loss) = Selling Price - Buying Price - Costs

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Here are what each of those mean:

• Selling Price: This is the amount you receive when you sell or dispose of your crypto.
• Buying Price: This is the cost you incurred when you originally acquired the crypto.
• Costs: Costs related to the transaction, such as brokerage fees and exchange fees, can be added to the buying price or deducted from the selling price.

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Additionally, you have the flexibility to employ either the FIFO, HIFO, or LIFO method for calculating capital gains on your crypto holdings, provided that you can distinctly identify each of your cryptocurrency assets.

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If you had a gain, you pay CGT at your marginal tax rate. If you had a loss, you can carry forward capital losses to offset against future capital gains. Capital losses can be carried forward indefinitely until they are fully utilized to offset capital gains. However, capital losses cannot be offset against ordinary income.

Holding period considerations

The length of time you hold a cryptocurrency can affect how it's taxed. If you hold it for at least 12 months before disposing of it, you may be eligible for a 50% CGT discount. This means you only include half of the capital gain in your taxable income.

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For example, if you made a AUD 10,000 profit from selling a cryptocurrency you've held for more than 12 months, you might only need to report AUD 5,000 as taxable income.

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It's important to keep detailed records of your crypto transactions, including dates, amounts, and any associated costs. This information is crucial when calculating your capital gains or losses for tax purposes.

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Understanding CGT and its implications for cryptocurrency transactions is essential for individuals in Australia to ensure compliance with tax regulations and accurately report their financial activities.

Receiving crypto as income

In Australia, crypto can be received as income in various ways. Let's break down how it's treated:

1. Salary or Wages Paid in Cryptocurrency: If your employer pays you in crypto, it's considered a form of income, just like receiving your salary in Australian dollars. You must report the value of the crypto received in your tax return at the time you receive it.
2. Cryptocurrency Mining: If you're into crypto mining and earn rewards or coins through this process, the value of what you mine is also considered income. This applies whether you're mining as a hobby or as a business activity.
3. Airdrops and Hard Forks: If you receive crypto through airdrops (free distributions) or as a result of a blockchain hard fork, the value of the coins received is considered income. The ATO is very clear that the cost basis for new coins from a hard fork is zero, so you’ll pay Capital Gains Tax on the total value of your coin as it’s all seen as profit. You need to include this in your tax return.
4. Referral bonuses: Many popular crypto applications offer referral bonuses for new users. These bonuses are considered ordinary income based on the fair market value of the coins at the time of receipt and are taxed accordingly.
5. Trading as a Business: If you actively trade crypto and it's considered a business activity, the profits you make from trading are treated as ordinary income. This means you'll need to report your trading income and expenses.

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When it comes to reporting crypto income in your tax return, here's what you need to do:

• Keep detailed records of all your crypto-related income and transactions, including dates, amounts, and the purpose of each transaction.
• Convert the value of the crypto income to Australian dollars at the time you receive it. Use reputable crypto exchange rates for this.
• Include the total value of your crypto income in the appropriate section of your tax return. This ensures you're accurately declaring your income from crypto.

Using crypto for goods and services

If you pay for goods or services with crypto, it gets treated as a barter transaction for tax purposes. This means that both the buyer and the seller are considered to have exchanged the crypto for goods or services of equivalent value. If the value of the crypto has increased since its acquisition, you may incur capital gains tax liabilities. On the other hand, if the value has decreased, you might be able to claim a capital loss.

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The value of the crypto you spend is assessed based on its Australian dollar equivalent at the time of the transaction. If the crypto's value is less than AUD 10,000, there is an exemption for capital gains tax. However, this exemption doesn't apply to investments or business transactions.

FAQs about crypto taxes in Australia for individuals

1. Do I need to pay taxes on my crypto holdings in Australia?

Yes, in Australia, crypto is considered property, and it's subject to capital gains tax (CGT). This means that when you dispose of crypto, such as selling it or trading it for another crypto or goods and services, you may be liable to pay taxes on any capital gains you make.

2. How are crypto taxes calculated in Australia?

Crypto taxes are calculated based on the capital gains you earn from the disposal of your crypto. To calculate your capital gains, you subtract the cost base (the price you acquired the crypto for, including transaction fees) from the sale proceeds. The resulting profit is what you'll be taxed on.

3. Is there a minimum threshold for reporting crypto gains in Australia?

No, there's no minimum threshold for reporting crypto gains. Even if your gains are small, you're still obligated to report them to the ATO.

4. What if I use crypto for personal transactions or purchases?

Using crypto for personal transactions or purchases is still considered a disposal for tax purposes. But if the value of the cryptocurrency is less than AUD 10,000 at the time of the transaction, you generally won't have to worry about CGT. You’ll need to calculate any capital gains or losses based on the crypto's market value at the time of the transaction and report it accordingly.

5. Are there any exemptions or concessions for crypto taxes in Australia?

Yes, there are some concessions available. For example, if you hold your crypto for more than 12 months before selling or trading it, you may be eligible for a 50% CGT discount.

6. How do I report my cryptocurrency gains to the ATO?

You need to report your crypto gains and losses in your annual tax return. The ATO provides guidelines and forms specifically for reporting crypto transactions. It's essential to keep detailed records of all your crypto transactions, including dates, amounts, and the parties involved.

7. What happens if I don't report my cryptocurrency gains?

Failing to report your cryptocurrency gains accurately can result in interest charges, penalties, and even criminal charges. The ATO has been actively monitoring crypto transactions and cracking down on tax evasion in this space, so it's crucial to comply. The ATO can amend your tax assessment if they discover non-compliance within a certain period. Generally, they can go back up to two years for individuals, but this may be extended in cases of deliberate evasion.

8. Can I offset crypto losses against other capital gains?

Yes, you can offset crypto losses against other capital gains you've made in the same financial year. If you end up with a net capital loss for the year, you can roll this over to the next year to offset future capital gains. This can help reduce your overall tax liability.

9. How does crypto mining affect my taxes?

Crypto mining is also subject to taxation. The rewards or coins you receive from mining are considered income, and you must report their value as part of your taxable income.

10. Where can I get more information on crypto taxes in Australia?

For detailed information and guidance on crypto taxes in Australia, it's advisable to consult the official resources provided by the ATO. They have specific guidelines and publications that can help you understand your tax obligations related to cryptocurrency.

Tax guide for businesses that deal in crypto

Australia has well-defined tax regulations in place for corporations involved in crypto transactions. Below, we outline the key aspects.

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Capital Gains Tax (CGT) when you sell or dispose of crypto

The ATO classifies crypto as property rather than conventional currency. Here's a closer look at how this treatment affects taxation:

• Capital Gains Tax: CGT is the primary tax mechanism applied to crypto transactions, and it applies when a corporation disposes of cryptocurrency.
• No 50% CGT discount: Unlike individuals and trusts, companies can not claim a 50% discount on CGT if assets were held for more than 12 months. There are a few small business concessions you can see if you’re eligible for, though.
• Offsetting losses: It's worth noting that capital losses from other CGT events, such as the sale of traditional assets like stocks, can be offset against capital gains from crypto transactions. This could reduce your overall tax liability.
• Record Keeping: Precise record-keeping is crucial. Corporations are required to maintain comprehensive records of all crypto transactions, including transaction dates, amounts, the parties involved, and the purpose of each transaction. These records are essential for accurate CGT calculations and tax reporting.

Business transactions involving crypto

When corporations engage in crypto transactions as part of their normal business operations, specific tax rules apply in Australia. Here are the key considerations:

• Revenue Classification: One of the primary distinctions corporations must make when dealing with crypto transactions is whether they are part of their regular business operations (revenue) or treated as investments (capital). This classification determines how the transactions are taxed:‍
• Revenue transactions: If a corporation's primary business activity involves buying and selling crypto, the profits and losses from these transactions are typically treated as ordinary income. This means they are subject to the corporation's standard income tax rate.‍
• Capital transactions: When corporations hold crypto as investments, and the disposal of these assets falls under capital gains tax rules.‍
• Goods and Services Tax (GST): For most crypto transactions in Australia, the sale of crypto is considered a taxable supply for Goods and Services Tax (GST) purposes. This means that corporations may need to charge GST on the sale of crypto. However, they can also claim GST credits on related business expenses, such as mining or transaction fees.‍
• Reporting obligations: Corporations must ensure that they accurately report both revenue and capital transactions involving crypto in their annual tax returns. Proper record-keeping and diligent reporting are essential to meet tax obligations.‍
• Receiving crypto assets as payment for services: If you receive crypto assets as payment for services provided by your business, the value of the crypto assets in AUD at the time received is ordinary income of the business.‍
• International transactions: Corporations engaged in international crypto transactions should also consider potential tax implications, including transfer pricing rules and foreign income tax obligations.‍
• Transfer pricing rules: Australia has robust transfer pricing rules in place. When a corporation conducts crypto transactions with related entities or subsidiaries abroad, these transactions should be priced in accordance with the arm's length principle. This means that the prices set for crypto transfers should be similar to those in a comparable transaction between unrelated parties. Failure to adhere to these rules can lead to transfer pricing adjustments and potential tax liabilities.‍
• Foreign income tax obligations: Corporations involved in international crypto transactions may have foreign income tax obligations in addition to Australian tax responsibilities. The tax treatment of crypto can vary from one country to another, so it's crucial to understand and comply with the tax laws of both Australia and the relevant foreign jurisdictions.‍
• Double Taxation Agreements (DTAs): Australia has DTAs with several countries to prevent double taxation of income. Corporations engaged in international crypto transactions should take advantage of these agreements to determine their tax liabilities and potentially reduce their tax burden. DTAs typically outline rules for determining which country has primary taxing rights on specific types of income.‍
• Paying salary or wages in crypto assets: When an employee has a legitimate salary sacrifice arrangement with their employer, opting to receive crypto assets as remuneration instead of Australian dollars, the disbursement of these crypto assets constitutes a fringe benefit. This benefit is categorized as a property benefit, and its valuation is determined at the moment of issuance. In the absence of a valid salary sacrifice agreement, the employee is regarded as having received their standard salary or wages. In this scenario, the employer is responsible for fulfilling their pay-as-you-go (PAYG) withholding and superannuation obligations, calculated based on the Australian dollar equivalent of the crypto assets disbursed to the employee.

ICOs

If your company conducts an initial coin offering (ICO), here’s what you need to know:

• Fundraising treatment: In most cases, when a corporation conducts an ICO, the funds raised from investors are not considered as income for tax purposes. Instead, they are treated as capital. This means that the corporation is not liable for income tax on the funds raised through the ICO. Moreover, If the crypto-asset issued by the ICO is a financial product (such as an interest in a managed investment scheme or a security), the issuer will need to comply with the relevant capital raising provisions of the Corporations Act, AFS licensing requirements and other regulatory requirements.
• Token classification: The tokens or coins issued during an ICO can have different tax implications based on their nature. Corporations must classify these tokens correctly as either utility tokens or investment tokens:‍
• Utility tokens: If the tokens issued during the ICO are primarily intended to provide access to a product, service, or platform (i.e., they have a utility function), they are generally not subject to CGT when used for their intended purpose. However, if they are later sold for a profit, CGT may apply.‍
• Investment tokens: If the tokens are considered investments or securities, they may be subject to CGT or other tax rules when they are sold or disposed of.‍
• Record-keeping: As with all crypto transactions, accurate record-keeping is crucial. Corporations involved in ICOs should maintain detailed records of the ICO process, including the amount of funds raised, the number of tokens issued, and their intended use.‍
• Token holders' tax obligations: It's also important to consider the tax obligations of token holders who participate in the ICO. Depending on the nature of the tokens received, token holders may have CGT or income tax obligations when they use or sell the tokens.

Crypto mining

If you engage in crypto mining as a business endeavor, whether independently or as a service provider to a mining pool operator, the crypto assets acquired through mining are classified as the trading stock of your business.

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All businesses are obligated to assess the value of their trading stock at two key points:

1. At the conclusion of each fiscal year (referred to as closing stock).
2. At the commencement of the subsequent fiscal year (referred to as opening stock). Whether your activities constitute a business depends on your unique circumstances. It is essential to determine your business status and understand the corresponding tax treatment for the crypto assets you utilize.

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Good record-keeping is crucial - and Bitwave can help

Corporations engaging in crypto transactions in Australia must report these activities accurately in their annual tax returns. Failure to do so can have significant consequences, including penalties and interest charges. The ATO takes a proactive stance on crypto taxation compliance, and they have access to data that allows them to track cryptocurrency transactions.

Therefore, keeping good records is the bedrock of financial clarity and compliance. It ensures accurate reporting, defends against audits, prevents penalties, and offers unparalleled peace of mind. One tool that can significantly simplify this process is Bitwave, a crypto tax platform designed to streamline back-office operations.

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With Bitwave, you can integrate the blockchain into your traditional accounting system, automating mark-to-market processes, simplifying quarter-end procedures, and avoiding manual errors.

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Ready to simplify your crypto tax management? Request a demo with Bitwave today.