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Trade cryptocurrency in Australia? Keen to minimise your tax payments while staying on the ATO’s good side? Unsure of which tax category your crypto activity falls under? Feeling a little confused about the whole thing?
This article will give you the low-down on 11 essential things you NEED to know about paying tax on crypto in Australia.
What you NEED to know:
Let’s begin.
First things first – The ATO (Australian Tax Office) does not view Bitcoin and crypto as money or Australian or foreign currency. Instead, the ATO classes digital currency as property and a capital gains tax asset (CGT).
Most cryptocurrency transactions fall under the capital gains tax regime which requires you to pay a capital gains tax on the profit/loss from your trades. Other common crypto activities such as mining/staking fall under regular income tax.
A CGT event occurs when you dispose of any cryptocurrency, such as if you:
In Australia, cryptocurrency transactions (and all capital gains tax assets) are taxed at your assessable/nominal/marginal income tax bracket which depends on your total income during the tax year. There is no special tax rate for CGT and your capital gains form part of your assessable income.
Assessable income is calculated like this:
Assessable Income = Income + Capital Gains – Deductions
| Resident tax rates 2020–21 | |
| Taxable income | Tax on this income |
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 19 cents for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45 cents for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%. For information about tax for seniors and pensioners, click here.
Source: ATO
EXAMPLE: If you earn between $18,201 – $45,000 (including the capital gain amount) then you will be paying 19 percent on the gain/profit from your crypto.
Like most countries around the world, there are no taxes for buying or holding crypto in Australia. However, when you ‘dispose’ of your crypto, whether that be selling it, gifting it, using it to buy things online, or exchanging it for another cryptocurrency, you will be required to pay a capital gains tax (CGT) on your capital gain.
Thus, it is important to keep accurate records of your crypto purchases (even if you plan on HODLing!) so you can calculate the cost base of the transaction when you decide to dispose of the crypto. The cost base refers to the total equivalent AUD value spent in acquiring the asset.
Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.
A note on exchanging crypto: Even though trading one crypto for another means that any gains you’ve made haven’t actually been realised in fiat currency yet, CGT still applies.
So, when you trade one cryptocurrency for another, you’re essentially receiving property rather than money in return for the first cryptocurrency. Therefore you need to keep a record of the value (in Australian dollars) of the cryptocurrency you receive.
A note on gifting/receiving crypto: Gifting crypto is exactly the same as selling it, so it is a taxable event and you need to pay capital gains tax. If you own cryptocurrency, and you transfer (gift) it to another person, you’ve disposed of a capital asset and a CGT event has occurred.
When gifting crypto, you’re taken to have received its market value at the time of the disposal as capital proceeds, and you’ll need to work out whether you have made a capital gain or a capital loss on the transaction (and pay the tax accordingly).
Additionally, you don’t have to pay taxes when you receive cryptocurrency as a gift. However, you will be subject to capital gains tax at the time of disposal of that cryptocurrency. In a sense, this means tax will need to be paid twice when gifting.
When receiving crypto as a gift, use the market value of the gift on the day you received it when calculating any capital gain or loss.
A note on paying for stuff online with crypto: Purchasing goods or services with cryptocurrency is subject to the same tax treatment as selling crypto. Whether you’re paying bills using crypto or using BTC to pay for a coffee, these are all taxable events (with some exceptions – see the section on the personal use asset exemption).
A note about transferring crypto to a different wallets that you own: Moving crypto between different wallets or accounts is not a taxable event and doesn’t trigger capital gains tax. Having said that, it’s important to keep track of these movements if you are using an automated crypto tax software.
Generally, if you make a capital gain when you dispose (sell, gift, exchange, etc.) of your crypto you will pay tax on some or all of that gain.
However, if you hold your crypto for at least one year then you can get a 50% discount on the capital gains.
With this in mind, it might be in your best interest to do as they say and hold/HODL!s
EXAMPLE: Emily, an Australian resident, buys 1 BTC for $4000 in 2017. She sells it 14 months later in August 2018 for a total of $6000.
Her capital gain is therefore: 6000 – 4000 = $2000.
Assuming she earns an income of $20,000 during the year. her tax bracket would be 19%. However, since she sold the crypto after holding it for more than one year, she can get a 50% discount on her CGT and only needs to declare a capital gain of $1000 (instead of $2000) which will be taxed at 19%.
Note: the long-term CGT discount does apply to crypto-to-crypto trades. However, by the same token, the 12 month holding period is reset every time you sell, trade or convert your cryptocurrency.
The vast majority of people who buy cryptocurrency are seen as investors by the ATO (buying crypto for the purposes of holding it for long-term gain).
However, if you are running an explicitly crypto-oriented business, such as a mining farm, or are operating as a trader rather than an investor, then the rules are different and you may have access to many of the tax benefits available to small businesses.
A trader is generally someone conducting a business for the purpose of earning income from buying and selling cryptocurrency. A trader treats their profits as business income rather than assessing each transaction as a capital gains event.
Generally, if you’re holding crypto with the aim to make a long-term gain, you’re likely an investor. If you’re looking to regularly buy and sell crypto over the short term for the purpose of making profits, then you may be classified as a trader.
While there’s no clear definition of what constitutes a trader, or a crypto orientated business, if you do fall into the ‘trader’ category you will likely have:
If you think you might be able to fall into the category of trader rather than investor, we recommend that you seek professional advice from a crypto tax specialist to make the process (especially if you are new to this) a lot easier!
If you can prove your cryptocurrency is a ‘personal use asset’, some capital gains or losses that arise from the disposal of a cryptocurrency may be disregarded.
According to the ATO:
Cryptocurrency is a personal use asset if it is kept or used mainly to purchase items for personal use or consumption.
Cryptocurrency is not a personal use asset if it is kept or used mainly:
What constitutes a personal use asset is something of a grey area, however, there are some general guidelines to keep in mind.
Cryptocurrency is more likely to be a personal use asset when it is acquired and used within a short period of time for personal use or consumption.
However, where the cryptocurrency is acquired and held for some time before any such transactions are made, or only a small proportion of the cryptocurrency acquired is used to make such transactions, it is less likely that the cryptocurrency is a personal use asset (it is then classified as an investment), especially if you are profiting off its change in market price).
While you can find the ATO’s stance on crypto as personal use assets here, generally speaking, the longer a cryptocurrency is held, the less likely it is that it will be a personal use asset – even if you ultimately use it to purchase items for personal use.
If you do intend on applying for this personal use asset exemption, we recommend that you keep two separate wallets – one for investments and one for personal use – this will make proving your intention for the crypto to the ATO a lot easier at tax time.
Note: Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded.
It is important to do your own research and read the fine print carefully – false information (as much as you want it to be true, can land you in a lot of trouble).
Common misconception 1: If you have under $10,000 in Crypto, it’s for personal use and isn’t taxed.
This is a common mistake that comes from misreading the way that the ATO treats crypto as a personal use asset.
It’s true – you can buy up to $10,000 of crypto for personal use. But the definition of personal use here is very specific: usually, it’s buying crypto to directly buy something else over a short time period (and not profiting from the longer-term changes in market price).
Common misconception 2: You can reduce your regular income tax through capital gains losses.
Because crypto is treated as a CGT asset, you only make capital gains or capital losses. Capital losses can only be offset against capital gains and not against your regular income! Even if you have more capital losses than gains you cannot reduce your total taxable income.
Common misconception 3: If you gift cryptocurrency you do not have to pay capital gains tax on it!
In the words of the ATO:
“You generate a ‘CGT event’ every time you sell, trade or gift cryptocurrency.”
“Even gifting cryptocurrency will incur a capital gains tax and the person receiving the crypto will also have to pay tax on it if they choose to convert it to AUD or to exchange it for a different cryptocurrency.”
Common misconception 4: Bitcoin and cryptocurrency transactions are anonymous and the ATO does not have access to your wallet or crypto transaction history.
While some coins do offer an added level of privacy, the blockchain, in essence, is an immutable and public ledger of transactions which essentially stores all the transactions made forever. In other words, if you’re doing some dodgy tax stuff you may well be leaving a permanent paper trail which could cause you a lot of grief down the track.
Additionally, if your private wallet has ever interacted with a wallet on an exchange, or you’ve posted it publicly to a social media account linked to one of your emails, there is a good chance it can be traced back to you. It is not difficult to reasonably link a wallet to an identity, and the ATO, if they choose, can access the records of all major Australian crypto exchanges.
The Australian government and the ATO have begun treating crypto (and crypto tax) more seriously. While they have cracked down on the rules and regulations, they’ve also provided a clear stance on some of the more niche crypto scenarios.
Visit the ATO’s crypto information page or another online guide for the low-down on things like chain splits, airdrops, crypto mining, staking, crypto loans, ICOs/IEOs and moving crypto between wallets.
We hope this doesn’t happen – and it won’t if you’re vigilant. Still, if something does go amiss, in order to claim a capital loss for hacked or stolen cryptocurrency, you need to be able to provide certain evidence. This includes:
With Australian regulators catching on to the fact that crypto is here to stay, tax obligations have become stricter and more defined.
The ATO is focused on ensuring that all crypto traders meet their tax obligations and there have been many recent stories where they have been actively tracking down crypto traders and sending out warning letters when people dispose of their crypto.
All major crypto exchanges in Australia are now also covered by AUSTRAC. That means they keep records of transactions and the identities associated with those transactions, and the ATO can access those records.
Whether you are using cryptocurrency as an investment, for personal use or in business, it is important to keep the following records:
The kind of records you should keep include:
Remember: it’s (literally) the ATOs job to keep you honest and ensuring you pay the same amount of taxes as everyone else on your crypto.
While there are grey areas when it comes to crypto (and taxes), we don’t recommend trying to bend the law or ignore some of the tax guidelines the ATO has put in place. Not only is it a poor long-term strategy, but the repercussions can be serious and not worth the money you think you’re saving on taxes!
We hope this article has been helpful. While crypto tax might seem like a bit of a headache, once you know where your activity stands, it really isn’t that difficult.
In reality, there’s as much bad advice out there as there is good advice (Facebook groups and online forums in particular).
While it’s good to talk to other crypto traders, you should always do your own research when it comes to things like paying crypto tax, especially because rules vary wildly between countries and even the type of trader you are.
Around the world, countries have very different approaches to crypto taxes.
You want to make sure you’re getting info that’s relevant to your specific trading activity and not from a different kind of trader or tax forum from, say, Germany or Singapore.
Anyway, that’s all for today – thanks for sticking with us!
If you’re looking for the simplest way to trade crypto in Australia with low fees, sign up with Digital Surge and join thousands of other smart investors trading crypto the easy way.
Good luck and happy trading!
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