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How the ATO taxes Cryptocurrencies

The ATO has announced that they will be focussing their interest on Cryptocurrencies during the 20/21 EOFT taxation process.

If you individually, or through your business, have had dealings with Cryptocurrency in the past financial year, you will need to include these in your EOFY tax return.

Please ensure declare your transactions, have clear records, and discuss your transactions with your STS Accountant.

If you’re uncertain of your obligations please read on for further information from the ATO’s website:

Cryptocurrency

The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.

The creation, trade and use of cryptocurrency is rapidly evolving. This information is the ATO’s current view of the income tax implications of common transactions involving cryptocurrency. Any reference to ‘cryptocurrency’ in this guidance refers to Bitcoin, or other crypto or digital currencies that have similar characteristics as Bitcoin.

Transacting with cryptocurrency

A capital gains tax (CGT) event occurs when you dispose of your cryptocurrency. Disposal can occur when you:

  • sell or gift cryptocurrency
  • trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
  • convert cryptocurrency to fiat currency (a currency established by government regulation or law ), such as Australian dollars, or
  • use cryptocurrency to obtain goods or services.

If you make a capital gain on the disposal of cryptocurrency, some or all of the gain may be taxed. Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.

Record keeping for cryptocurrency

It is vital to keep good records for all your transactions with cryptocurrency, whether you are using cryptocurrency as an investment, for personal use or in business.

You need to keep the following records in relation to your cryptocurrency transactions:

  • the date of the transactions
  • the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
  • what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).

The sorts of records you should keep include:

  • receipts of purchase or transfer of cryptocurrency
  • exchange records
  • records of agent, accountant and legal costs
  • digital wallet records and keys
  • software costs related to managing your tax affairs

Keeping good records will make it easier to calculate and meet your tax obligations, and if you are in business, they will assist you to manage your cash flow and see how your business is doing.

This information was sourced from the ATO website. For more information on Transacting with Cryptocurrency click here.

We look forward to assisting you further with the requirements for your declarations and tax obligations. If you need assistance or further clarification please don’t hesitate to contact our STS team today.