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Despite cryptocurrency’s elusive status as an unregulated and decentralised asset class, and numerous warnings about its volatility, it does not escape the certainties of tax time.
With recent Roy Morgan investment-based research finding that more than a million Australians now own at least one cryptocurrency, it’s important to brush up on the tax requirements for this asset class. Therefore, we will be taking a more in-depth look at the necessary tax information for crypto investments.
Yes, you must pay tax on your crypto if you hold it as an investment. In crypto investors’ ideal world, taxes wouldn’t apply to digital currency; however, as the federal government considers your crypto investments to be assets, they fall under the Capital Gains Tax (CGT) umbrella. Transactions such as disposal, exchange or swap are all considered by the ATO to be a CGT event: a fact that is often overlooked, according to senior tax manager at online tax return service, Etax.com.au, Liz Russell.
“I find a lot of people don’t realise that exchanging one type of crypto for another, for example using Bitcoin to purchase Ethereum is also considered a capital event by the ATO,” Russell says.
“So in this case, the price difference of Bitcoin when you bought it versus when you used it to buy Ethereum is treated the same way from a tax point of view as it would be if you sold the Bitcoin for Australian dollars.”
As the Australian Government is yet to declare crypto an official currency or legal tender, it is currently categorised as an asset. This was reaffirmed in the recent Budget, in which the Albanese government noted that cryptocurrencies will not be regarded as a foreign currency for tax purposes, appearing to signal that Australia will not be following El Salvador in declaring Bitcoin to be legal tender.
Therefore, as you would with any asset, if you sell your crypto for a profit, you have made capital gains and are required to pay tax on this profit.
It is important to note that CGT is simply a title; any net gains your investment makes falls under the assessable income for your income tax. So what is the rate of the capital gains tax on your crypto? It is the same rate as your income tax rate.
However, there are some variations in the way that your tax is calculated, depending on whether you are classed as a trader or an investor. The details of these variations are slightly more nuanced and can be confusing for beginners.
The ATO has a page on the difference between share trading and investing, however, to make it more straight forward we have compiled the following definitions:
Despite seeming confusing on paper, if you are conducting your trading for short-term gain, or running a crypto exchange, the ATO will tax you as a trader. If you are still unsure where you stand, traders often have business plans, strong record-keeping, and a very high quantity of trades.
An investor is usually more of a casual player, and generally hoping for long-term gains.
There are other differences, too. “An investor is eligible for the 50% capital gains tax discount if they hold the cryptocurrency for more than 12 months whereas a trader is not eligible for the same concession,” Russell says.
“However, a trader may be entitled to the small business income tax offset of up to $1000 per year instead.”
When it comes to losses, Russell says that if an investor makes a capital loss, they can only use it to offset a capital gain, otherwise it must be carried forward to future income years and, once again, used to offset a capital gain.
There is also a key difference when it comes to paying transaction costs or buying/selling fees.
“For an investor these costs are recognised when the crypto asset is sold, whereas for a trader the costs are deductible in the year they are incurred even if the crypto has not been sold yet,” Russell adds.
If you wish to switch camps and re-classify your activities, it is simple to do so. You will have to provide some evidence that the nature of your activity has changed, and that you have appropriately recorded your income without any incorrectly claimed losses. Switching from investor to trader will require you to change your CGT assets to trading stock on the record.
It is necessary to inform the ATO if you decide to upgrade from an everyday investor to a trader or vice versa; failing to do so could result in various penalties.
You file your crypto tax information at the same time of year that you file your other taxes. If you are an individual lodging your own tax return for the previous financial year, the tax deadline is October 31. Unless you choose to lodge with the aid of an accountant, then you will have a significantly increased deadline.
The ‘MyTax’ branch of the ATO, available through your MyGov account, allows you to easily declare capital gains or losses by selecting the ‘capital gains or losses that are not from a managed fund’ option.
To calculate whether you have made capital gains, you first need to know your cost basis. This cost basis is the sum of the coin’s cost (AUD equivalent), plus any associated transaction fees. Once you have this figure, you will have to then subtract it from the sale price to find your capital gain. If you no longer own this crypto, subtract your cost basis from the AUD fair market value of your crypto on the day you sold it.
If you are a crypto investor, the net capital gain made is paid at your income tax rate. Therefore, if your income was less than $18,200 in the previous financial year, you do not pay tax, as anything below this amount constitutes the tax-free threshold.
In the unfortunate event that you made a capital loss in the previous business year you can deduct this loss from any capital gains. As mentioned above, the option to offset gains on your crypto investments can save you money; you can also carry over this loss to future years. While there are no time limits on carrying forward a capital loss, the losses must be used at the first available opportunity.
You may also be able to claim capital loss if your crypto is stolen by a hacker or scammer, or if you lose your private key. However, you will need to prove your loss to the ATO, alongside evidence that you cannot get these digital assets back.
It isn’t all doom and gloom, there are crypto tax breaks available, alongside some tax-free activities. For example, if you are under the tax-free threshold you will be completely exempt, or you might get an exemption if you hold cryptocurrency as a personal use asset—although it is rare to qualify for this. As an investor, if you hold your crypto for more than 12 months before selling or trading, it’s possible that you could be entitled to a 50% CGT discount.
Below is a simplified list of other methods that might help you improve your tax obligations:
Russell says: “In general, the same tax concessions that are available to taxpayers who sell shares or property apply to crypto investments.”
She recommends:
“Overall cryptocurrency and tax is a complicated area of tax law and my advice is that everyone’s circumstances are unique and you should always seek the advice of a registered tax agent to ensure your tax return is correct and you don’t run into ATO troubles down the track,” Russell says.
Please note: it’s wise to speak to an accountant or an industry professional who knows your situation before proceeding. This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.
Yes, the ATO can track the movements of your crypto investments, with databases holding crypto information dating back to 2014. If you have an account with an Australian exchange, or an Australian wallet, the government is most likely aware of your movements. The ATO also has a data matching program that works with Australian exchanges. As senior tax manager at online tax return service, Etax.com.au, Liz Russell says: “If you purchased your crypto with an Australian-based crypto exchange, then it’s almost certain the ATO knows you’ve done it as these exchanges have a data sharing arrangement with the ATO where they are required by law to advise the ATO of your purchases.”
You can avoid some crypto taxes by donating crypto to registered charities, acquiring crypto as a gift, or holding it as a personal use asset, etc. There are many viable options to at least reduce the tax you pay on your crypto so speak with a professional for more information.
To simplify the process and ensure you are filing your taxes correctly, you can access the aid of crypto tax software, a crypto tax calculator, or you can speak to a knowledgeable accountant, who specialises in crypto investments.
Generally speaking, crypto coins, NFTs, stablecoins, and tokens fall under the Australian crypto tax requirements. However, as senior tax manager at online tax return service Etax.com.au, Liz Russell notes, the tax implications for NFTs vary depending on how it was used and the reason for holding or transacting it.
“If you create an NFT with the intention to sell it for a profit, then it may be treated as income—as a profit-making scheme or as part of a business,” Russell says.
“If you’re buying NFTs as an investment, hoping to hold onto them and sell later at a higher price it will be treated as a CGT asset and taxed under CGT rules. In very limited circumstances, it’s also possible that NFTs fall under the ‘personal use asset’ classification for CGT which means you may be exempted from CGT if it was less than $10,000.”
Yes, you do. Here is senior tax manager at online tax return service Etax.com.au, Liz Russell on this misconception: “Some people think they can apply the $10,000 personal asset rule if their crypto is worth less than $10,000. Unfortunately, the ATO almost always considers crypto to be a non-personal asset. The only exception is if the crypto is purchased and then immediately sold to purchase a personal item.”
Lauren Claxton is a freelance writer with a focus on personal finance and cryptocurrency. She has previously written for Crypto News Australia and was employed as a content writer at Monzi Personal Loans. Based in Brisbane, her goal is to make the financial world easily comprehensible, particularly for the younger generations.
Johanna Leggatt is the Lead Editor for Forbes Advisor, Australia. She has more than 20 years' experience as a print and digital journalist, including with Australian Associated Press (AAP) and The Sun-Herald in Sydney. She is a former digital sub-editor on The Guardian and The Telegraph in the UK, and lives in Melbourne.
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