The Australian Tax Office (ATO) is aware of an increasing number of Australians buying and selling cryptocurrency over the past few years, the most popular types are Bitcon (BTC), Ethereum (ETH), Tether (USDT), etc. However, not every one of them are aware of their tax obligations. It is essential for investors and traders to understand the tax implications associated with these digital assets. ATO has provided comprehensive guidelines on how crypto assets are treated for tax purposes. To help you along the way, this article will outline the implication of tax on crypto assets in two aspects, which is Capital Gains Tax (CGT) for crypto investors and income tax for crypto traders.

Investor or Trader?

It is important to identify whether you are a crypto investor or crypto trader to determine whether your activities will be taxed under CGT rules or income tax rules. The most common use of cryptocurrency is as an investment, individuals who buy and sell crypto assets to make a profit would be considered as a crypto investor, any gains made from the disposal of crypto assets will be subject to CGT. On the other hand, for individuals who actively engage in trading cryptocurrency in an organised, business-like manner, would be considered as a crypto trader who carry on a crypto trading business. The trading income from the activities would be treated as business income.

Crypto Assets Investors

For individuals who hold crypto assets as investments, CGT becomes a crucial aspect to consider when selling, trading, or disposing of these assets. According to the ATO, cryptocurrencies are considered to be a form of property for tax purposes. This means that any gains made from the sale or disposal of crypto assets may be subject to CGT.

CGT Event:

A CGT event happens when you sell, gift, trade, exchange or swap crypto assets, even when you convert a crypto asset into Australian or foreign currency or buy goods or services with it. By simply buying or holding a crypto asset, you would not need to calculate any capital gains or losses. You are only required to calculate it when a CGT event happens.

Determining Capital Gain or Loss:

To calculate CGT, the ATO requires investors to determine the cost base of their crypto assets, which includes the original purchase price, transaction fees, and any incidental costs. When a crypto asset is sold or disposed of, the capital gain or loss is calculated by subtracting the cost base from the sale proceeds. If the resulting value is positive, a capital gain has been made, and if negative, a capital loss has been incurred. Any capital loss can be used to deduct against capital gains you made.

Holding Period and CGT Discount:

The duration for which a crypto asset is held can impact the amount of CGT payable. If an investor holds their crypto assets for longer than 12 months before selling or disposing of them, they may be eligible for the CGT discount. This discount allows you to reduce the capital gains by 50%, effectively lowering the overall tax liability.

Record-Keeping:

It is essential to maintain accurate records of all cryptocurrency transactions, including purchase and sale dates, amounts, and values. This documentation is crucial when calculating capital gains and losses for tax reporting purposes.

Crypto Assets Traders

For individuals who actively engage in cryptocurrency trading as a business, the ATO views the trading income as assessable income for tax purposes.

Reporting Trading Income:

As a trader, you are required to report your trading activities and include the profits as part of your taxable income. This includes gains from selling cryptocurrencies, profits from mining activities, and any other trading-related income. Ensure that you accurately track your trading income and report it in the appropriate section of your tax return.

Deductible Expenses:

As a trader, you are entitled to claim deductions for expenses directly related to your trading activities. These may include transaction fees, exchange fees, trading software subscriptions, and other expenses incurred in the process. You would need to keep receipts for everything related to your operating expense to substantiate any claims made.

Business Structures:

Depending on the scale and complexity of your trading activities, you may consider operating as a sole trader or setting up a business structure such as a company or trust. Each structure has its own tax implications, and it is advisable to seek professional advice to determine the most suitable option for your circumstances.

Conclusion

As the cryptocurrency market continues to expand, understanding the tax implications associated with crypto assets becomes increasingly important. Whether you are an investor or a trader, it is essential to comprehend how taxes apply to your specific situation. By adhering to the ATO guidelines, maintaining accurate records, and seeking professional advice, you can ensure compliance with tax obligations and minimise any potential risks or penalties from ATO.

Our team have enormous experience in the crypto compliance work and tax advice. By using professional crypto capital gain/profit calculation platform, we can assure you that your new year tax return could save ample accountant fees this time. Please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Zoe Ma @ Pitt Martin Tax