The use of cryptocurrency is growing every day in Australia, but what actually is it? More importantly, how does crypto tax affect you?
First things first:
What is cryptocurrency?
Cryptocurrency, usually shortened to crypto, is used to describe a digital or ‘virtual’ currency. Crypto is similar to normal currency when it comes to spending but it differs in the fact that nobody controls it and there are no physical coins or notes. It is just the transfer of digital assets. As crypto is considered an asset, crypto tax is also regulated differently to money.
How is crypto tracked?
Instead of multiple banks keeping multiple individual records, cryptocurrency is tracked in a blockchain. Put very simply, a blockchain is a digital journal or “ledger” that records and stores all crypto transactions. That ledger is “decentralised” in that it is not controlled by a bank or government or company. The ledger has multiple digital copies, stored all over the world, and each copy contains the same transaction history.
The fact that blockchain is decentralised and “non-government” does not mean it is a secret. We’ll get into that more, down below.
What everybody needs to know about crypto tax
With the ATO specifically targeting crypto in recent years, it’s important that you understand the tax consequences of owning cryptocurrencies. If you’ve sold, bought, or earned interest from crypto during the last financial year (1 July – 30 June), you’ll need to declare your crypto totals on your next Etax Return.
In our Australian crypto tax guide, we break down everything you need to know about crypto taxes, including what you need to provide when you lodge your crypto tax return with Etax. Plus, some tips on how to make your life easier at tax time.
The Australian Crypto Tax Guide:
At Etax, we want to help you understand how cryptocurrency investments are taxed, so we put together this simple guide to cryptocurrency and tax in Australia. It should get you up to speed with how to prepare and help you avoid possible ATO troubles in the future.
How is crypto taxed in Australia?
First, let’s define an important word that has a special meaning for your tax return:
Dispose means to sell, gift, trade, exchange, convert or use your crypto to buy things. If you exchange bitcoin for another type of cryptocurrency, or for an NFT, or for cash, any one of those transactions means you disposed of some cryptocurrency. (Why is it called “disposed”? Well, you don’t have it anymore, right?).
The ATO taxes cryptocurrency as a “capital gains tax (CGT) asset”. This means you must declare the transactions (on your tax return) for every time you traded, sold, or used crypto.
The ATO does not see crypto as money, and they don’t class it as a foreign currency. They instead list crypto as property, which is why it is considered an asset for capital gains tax purposes.
How does the ATO know about your crypto?
Etax clients often ask us, “how does the ATO know about my crypto?” And some people ask why they received a letter asking them to declare their crypto taxes (if they hadn’t already).
If you have an account with any Australian cryptocurrency provider, then it’s very likely that the ATO already has your data. The ATO could even have your crypto transaction data from as far back as 2014. The ATO has information you provided when signing up to Australian crypto exchanges or wallet providers. And the ATO is constantly increasing the number of sources and types of data they can legally get hold of. Owning crypto, and even using foreign coin exchanges, does not mean you can hide money or earnings from the ATO.
The ATO is getting very serious about tracking cryptocurrency, which means, people who did not do it right could face big ATO debts in the future.
How much tax do I pay on crypto gains?
A crypto gain or “capital gains event” occurs when you dispose of your cryptocurrency. Remember, “dispose” means to sell, gift, trade, exchange, convert or use crypto to buy things.
A capital gain in crypto is the same as a gain in any asset you own – like a share. The gain is the difference in value from when you got your crypto, to when you sold it. You’ll make a capital gain if the proceeds from the disposal are more than what it cost you. Always remember that this includes fees, known as the cost base. The cost base is the purchase price of your crypto plus the costs related to acquiring or disposing of it, like transfer/transaction fees.
Capital gains is a very complicated topic to fully understand. The amount of tax you pay on a crypto gain depends on your individual tax circumstances. It’s always best to seek the advice of a registered tax agent, like Etax. Tax agents can accurately estimate how much tax you need to pay on your crypto gains – or how much extra you could get back from the ATO.
What happens if I made a loss?
Even if you only made a loss, you still have to report it on your tax return. In fact, it’s in your best interest to report your losses. This is one of the best ways to reduce your crypto taxes; you might be eligible to claim a capital loss on your tax return.
Again, it’s best to seek the advice of a registered tax agent. If you go it alone, without being 100% across what you’re doing, it could cost you hundreds or even thousands of dollars!
Are crypto to crypto trades or swaps taxed?
Yes, any swap or exchange of cryptocurrencies is a taxable event in Australia. For example, if you exchange Bitcoin for Ripple, the ATO and other tax agencies will treat this as a sale (disposal) of Bitcoin at the market price you received at the time.
Do I have to pay tax if I transfer crypto from one ‘wallet’ to another?
As long as you own both wallets, there’s no tax to pay on your personal transfers. As long as you own both wallets, there’s no tax to pay on your personal transfers. However, you still have to keep track of the original cost of the transferred coins and have sufficient proof of it. Moving coins between wallets won’t hide the original amount you paid from your records and won’t change the fact of your capital gains or losses.
What do you need to do a cryptocurrency return at Etax?
Like any key investment, anyone involved in acquiring or disposing of crypto needs to keep records of their transactions. Crypto transactions attract Capital Gains Taxes and can also affect your tax refund.
Here is a list of things you need before you lodge your crypto tax return with Etax:
- A record of all crypto purchases, sales and interest earned.
- Ideally you should download a crypto tax report from your provider: (Eg. Koinly or Crypto Tax Calculator) This report shows your profit/loss and capital gains for the financial year. We use this to work out your tax liability on your crypto investments.
- If you transfer from one of your crypto wallets to another – you need to keep track of the original cost of the transferred coins and keep sufficient proof of it.
- Ensure you have all of your personal income tax items ready for your Etax return – feel free to use our tax return checklist.
As we said earlier, it’s always best to seek the advice of a tax expert to help you understand what records are necessary to keep throughout the financial year, and to get your tax return lodgement right.
Get in touch with our team of expert accountants today!