Cryptocurrency and Taxes
Dabbling in Cryptocurrency (Crypto) investments…? If you’ve sold, traded or earned cryptocurrency in the last financial year, you’ll need to declare this to the ATO in your annual tax return as you would with any other investment.
Though the tax can vay depending on the type of crypto transaction and your circumstances.
Your tax responsibilities depend whether you’re a crypto investor or a trader. The distinction becomes down to whether you’re carrying on a business or not.
Investor – For the most part people who buy and sell crypto with the intention of earning income will fall into the investor category. As an investor you’ll be taxed under the capital gains tax (CGT) rules. The vast majority of investors in Australia fall under this category.
For example, if you buy $2,000 worth of Bitcoin as an investment and then later sell it for $3,000, you’ll need to pay tax on the resulting $1,000 gain. However, if you hold your cryptocurrency for more than a year before selling or trading it, you may be entitled to a 50% CGT discount.
On the other hand, if the proceeds from the disposal of the cryptocurrency are less than what you paid to acquire it initially, you will experience a capital loss. Capital losses can be used to reduce capital gains made in later years, including investments outside of cryptocurrency.
There are exceptions where you may not be taxed, such as if you acquire cryptocurrency for personal use instead of as an investment. But even if you don’t have to pay tax on a particular transaction, you must keep records for all your crypto transactions. Most crypto trading apps/wallets have an option to download your list of transactions and/or download End of Financial Year (EOFY) Statements from their reporting section.
As an investor, just like shares and a range of other investments, you’re not taxed when you buy crypto, but a CGT event occurs when you dispose of any cryptocurrency.
Business – if you’re buying and selling large quantities of crypto in a business-like manner the ATO may deem you to be carrying on a crypto trading business. In this case, your earnings are classified as a business income and subject to income tax.
For help working out whether you’re an investor or a trader for crypto tax purposes, we recommend that you get in touch with one of our team to seek personalised advice relevant for your situation.
