Tax Treatment of Cryptocurrency Transactions

The number of people investing in cryptocurrencies (“crypto”) is increasing. But did you know that even though it’s a digital currency, taxes may still apply! Crypto is usually treated as an asset and this means that the transactions may be subject to Capital Gains Tax (CGT).

Here’s a breakdown of how the different crypto transactions are treated:

1. Buying Crypto – Simply buying crypto does not trigger any tax event. However, you need to keep records of the purchase date, amount, and value in Australian dollars.
2. Selling Crypto – When you sell crypto it is considered a disposal of an asset, and you may be liable for CGT. The amount of tax you pay depends on the difference between the cost base (the amount you originally paid for the crypto) and the amount you received when you sold it. If you incur a loss on the sale, it can be used to offset other capital gains. If your capital losses exceed your capital gains for the year, the net loss can be carried forward to offset gains in future years. Also, if you hold the crypto for more than 12 months before selling, you may be eligible for a 50% CGT discount.
3. Trading Crypto – Each time you trade one crypto for another, it is considered a taxable event where CGT may apply. The market value at the time of the trade in Australian dollars is used to calculate your capital gain or loss.
4. Using Crypto for Goods or Services – If you use crypto to purchase goods or services, it is treated as if you sold the crypto. Meaning CGT may apply based on the difference between the purchase cost and the market value at the time of use.
5. Receiving Crypto as Income – If you receive crypto as payment for goods or services, or through activities such as mining or staking, it is considered ordinary income and taxed at your marginal tax rate. The amount is based on the market value in Australian dollars at the time it was received.
6. Gifting or Donating Crypto – If you gift or donate crypto, it is treated as a disposal, and CGT may apply. The capital gain or loss is calculated based on the market value at the time of the gift or donation.
7. Personal Use Asset Exemption – If crypto is used solely to purchase items for personal use or consumption and the cost is less than $10,000, it might be exempt from CGT. This exemption does not apply to crypto held for investment purposes.

All the above points need to be considered when completing your tax, so remember to keep detailed records of all your cryptocurrency transactions (including dates, amounts, and the value in Australian dollars, as well as any associated fees or costs). The Australian Taxation Office (ATO) can now data match cryptocurrency transactions so it is imperative to accurately report this data in your tax return.

Crypto is an elaborate topic to cover, so we recommend reaching out to your Accountant for any uncertainties. The friendly team at HQB Accountants Auditors Advisors is always ready to help with questions or further information, so please don’t hesitate to call.

– Heida Bell

Posted 17.09.2024

This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.