Cryptocurrency Taxation In Australia: A Simplified GuideLast Updated on June 14, 2023 by Kevin Groves
The information contained in this guide is not intended to act as legal advice, tax advice, or financial advice. You should seek professional advice when working through your cryptocurrency taxation obligations and requirements.
One of the most challenging aspects of being a trader or investor is having to file your End of Financial (EOFY) year returns. There are so many formalities and legal nuances with cryptocurrency tax in Australia that have given rise to a negative reputation and confusion.
In this article, we break down how digital currencies are treated by the Australian Tax Office and a brief guide to your potential obligations.
Is Cryptocurrency Taxed in Australia?
Yes, the buying, trading, and selling of digital currencies from one crypto asset to another is a taxable event. Since the ATO considers cryptocurrencies as assets or property, they may be subject to Capital Gains Tax (CGT). Transactions made with digital assets including the use of fiat currency to purchase it, must be reported to the Australian government regardless if financial gain was obtained or not. The selling or disposal of crypto assets back to cash is another activity that will be subject to capital gains tax.
The ATO Stance On Cryptocurrencies
According to ATO, the word “cryptocurrency” refers to a digital asset in which encryption methods are employed to control the creation (or “mining”) of new units and validate transactions on a blockchain. Cryptocurrencies are regarded as assets or property by the ATO, and as a result, they are liable to crypto taxes.
When compared to other nations, Australia’s regulatory environment has been comparatively progressive towards digital assets. The Australian government has frequently emphasised to traders and investors that they must record all gains and losses on their tax returns. The ATO informed 350,000 cryptocurrency users in March 2020 that any financial gains from their crypto investments were subject to CGT and required reporting. Recipients had 28 days to reveal their cryptocurrency transactions.
In May 2021, the ATO sent correspondence to almost 100,000 Australians clarifying their tax obligations and advising them to revisit their previously filed tax returns. The root cause behind the incorrectly filed tax returns was indicated to be misconceptions and general confusion surrounding the taxation of digital assets such as Bitcoin and Ethereum.
Crypto Taxation For Traders & Investors
With ATO enforcing strict tax rules on crypto taxation, it’s very important that you understand the tax laws and learn how to report your crypto earnings correctly. The taxation of your digital asset portfolio depends on whether you are an investor or trader.
Investors are people who mainly engage in buying and selling digital assets for personal gains with the hope that their digital assets appreciate in value over time. In addition to HODLing, investors generally receive a passive income from airdrops, staking, and yields from interest-earning wallets.
Most of the people who deal with cryptocurrencies are deemed as investors, and their transactions are subject to Capital Gains Tax. This includes buying crypto, selling, staking, cryptocurrency gifts, & mining and is applicable even if the transactions happened outside Australia.
On the other hand, traders actively buy and sell Bitcoin by placing opening and closing positions on an Australian crypto exchange. Instead of evaluating every trade as a capital gains event, profits are handled as a form of business income.
Traders aren’t merely determined based on their trading volume or frequency of trades. For you to be considered a trader, your crypto transactions should explicitly imply that you think of your trading as a business. ATO will also conduct an assessment to determine the same.
Income tax normally applies to commercial crypto traders, whereas CGT generally applies to investors. The following circumstances will result in income tax for traders:
- Receiving payment or a salary in return for goods or services.
- Benefits for staking and interest payments, such as dividends.
- Airdrops connected to cryptocurrency advertising schemes.
- DeFi interest (akin to interest on a bank account).
- Referral fees (affiliate commissions).
If you’ve been engaging in cryptocurrency trading during the past year, you’ll have to file them in your tax returns.
How Does the ATO Know About My Crypto?
If you have been trading digital currencies then chances are the ATO is aware of your transactions. Under the provisions of the Data-Matching Program (Assistance and Tax) Act 1990, the ATO and Australian cryptocurrency platforms that are registered with AUSTRAC have been implementing a data-sharing program since 2014. Obtaining and owning digital currencies from a local crypto exchange or a foreign platform will still incur a tax liability.
How Capital Gains Tax Works
When is crypto subject to CGT?
The activities of crypto investors, who acquire, sell, and hold crypto in the hopes that it would increase in value or grow over time, are typically linked to crypto taxes. In accordance with crypto tax in Australia, CGT is applicable when financial gains are made through the sale or disposal of cryptocurrencies.
According to the ATO, all digital currencies are assets that are treated in the same way as company shares or house sales. This means that every time you buy, sell or gift your crypto, you have to assess the capital gains and report them as you file your tax.
Below are specific examples where CGT may apply, noting that all transactions (including losses) must be reported.
- Selling cryptocurrency (if there has been a profit).
- Cryptocurrency trading or swapping, or crypto-crypto transactions where one asset is sold to buy another.
- In cryptocurrency loans where you loan out your coins and get more coins back, the new coins will be considered as new assets, so their cost basis will be zero. If you, however, sell them, you’ll trigger a capital gains event.
- Converting digital assets to fiat money, such as Australian dollars.
- Using cryptocurrency to buy products or services.
- Exchange Offerings (IEOs) and Initial Coin Offerings (ICOs) are considered a crypto-to-crypto transaction, so the taxable event will happen when you receive the coins.
- Giving away cryptocurrency as gifts or presents.
A portion or the entire gain may be liable to CGT if the capital gain was made on the sale of cryptocurrencies. Alternately, some capital gains or losses that are thought of as assets for personal use may be exempt.
CGT discounts for long-term investments
To discourage all-day trading on crypto and share markets, the Australian government has implemented a long-term CTG discount. Investors who hold cryptocurrency for more than a year before selling will receive a 50% CGT discount. If the investors abide by long-term super funds or life insurance firms, a discount of 33.33% can be applied. The rebate is not available to those that the ATO considers to be merchants.
The available long-term CTG discounts include:
- 33.33% for life insurance companies that are deemed eligible and crypto super funds that are compliant.
- 50% for resident individuals. Based on the example above, as an Australian resident, the capital gains will be considered as $2,000 instead of $4,000 if you didn’t have any capital losses. If you experienced a capital loss of $2,000, it means that you only made a gain of $2000. Once the 50% CGT discount is applied, the taxable amount will be $1,000.
- A 50% deduction for foreign residents on any capital gains made after 8th May 2012.
Are capital losses on crypto taxable?
When a digital asset is sold for less than it was originally purchased for, a capital loss occurs. As there was no profit, capital losses are exempt from CGT. For instance, if you buy Bitcoin worth $5,000 but later sell it for $3,500, your capital loss is $1,500.
It is significant to remember that subtracting capital losses from capital gains will reduce the net CGT amount, which is why it’s important to report all transactions. Instead of paying tax for the amount for the original purchase price, you would only be taxed on the lower sell price.
Capital losses on crypto aren’t taxable, but you can use them to offset your capital gains in the same or subsequent financial years. So, if you made a capital gain of $5000 on one trade but made a capital loss of $2000 on the other, your overall capital gain will be $3000, which is taxable. That’s because the loss offsets the gain partially.
You can carry forward capital losses for as long as necessary, but if you make a capital gain in the subsequent year, you have to use them.
Capital gains tax exceptions
There are several scenarios where cryptocurrencies will not be subject to CGT. Examples of these scenarios are discussed below:
- The ATO will not consider your cryptocurrency as a capital gains event if you donate it to a registered charity. You can, however, claim the amount as a deduction on your tax return but ensure you calculate the prices fairly based on the market rates at the time of donations.
- If you only use your cryptocurrency as personal payment for goods and services or are holding less than $10,000 worth of digital currency, ATO will consider it as a personal asset and therefore not subject to crypto tax. You should, however, note that the assessment of personal use is done on a transaction-by-transaction basis. Your crypto won’t be considered for personal use if you hold it for an extended period, it was acquired as part of a business, or it is held for investment purposes.
- If your cryptocurrency was stolen or you’ve lost your private key and no longer have access to it, you can claim a capital loss on the value of the coins on the day they were lost.
- Purchasing cryptocurrency using AUD or another fiat money.
- Holding cryptocurrency without trading or selling it.
- Using an instant coin-to-coin swapping service where one asset is converted into another.
- Receiving cryptocurrency as a present or gift.
- Mining cryptocurrency for fun and earning cryptocurrency.
- Transferring cryptocurrency between hard or soft wallets.
How Do I Determine My Cryptocurrency Tax Rate?
As a cryptocurrency investor, the amount of tax you pay is based on your overall assessable income. Your overall revenue earned during the financial year will determine your CGT tax rate. The CGT tax rate for individual investors will be the same as the income tax rate for Australian citizens. The formula for calculating accessible income is Income + Capital Gains – Deductions.
ATO has a sliding scale of individual tax rates that you can use to determine the tax owed. Below are the tax rates for the 2021–2022 fiscal year, which do not reflect the 2% Medicare levy.
|> $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
|$51,667 plus 45 cents for each $1 over $180,000
For cryptocurrency traders, the formula differs a bit: Income +/- Tradings Gains/Losses – Deductions.
If your cryptocurrency trades are conducted through a company registered with ASIC, your tax rate is 27.5% of all business-related income minus the deductions, similar to all other companies.
Calculating Net Capital Gains
ATO determines your net gains by bundling all your digital assets together instead of differentiating them. This means that all the profit you make from the sale of property, crypto, or shares is calculated as one.
To calculate your net capital gains, the following formula is used;
Net Capital Gains = (Total Capital Gains – Total Capital Losses (inclusive of the previous years) * Capital Gains Discount (only applicable to disposed of assets that were held for over a year)
Once the net capital gains are determined, they are included in your pre-tax salary. ATO then uses this to calculate your overall taxable income
An example of how net capital gains are calculated
Tony buys $7,000 worth of Ethereum and $5,000 worth of Bitcoin. 6 months later, the price of Ethereum spikes, and he sells half of his coins for $4500. In this case, his capital gains from the transaction will be:
Half of Ethereum crypto= $3,500
Sold for= $4,500
Capital gain: $4,500 – $3,500 = $1,000
After 3 months, Tony sells the rest of his Ethereum for $2,500 and half of his Bitcoin for $2,000. In this case, he’ll have made a capital loss.
Half of Ethereum: $3,500
Sold for: $2,500
Capital loss: $2,500 – $3,500= -$1,000
Half of Bitcoin: $2,500
Sold for: $2,000
Capital loss: $2,000 – $2,500= -$500
The total capital loss will be $1,500
At the end of the financial year, Tony will have made a capital gain of $1,000 and a capital loss of $1,500. The overall capital loss will be $500.
Since no profits were made, he won’t have to pay any tax.
Assuming the next year, the price of Bitcoin soars, and he sells the rest of his crypto for $4,000, the capital gains will be;
Half of Bitcoin: $2,500
Sold for: $4,000
Capital gain: $4,000 – $2,500= $1,500.
Now, since Tony held on to the cryptocurrency for more than a year, he’s also eligible for the long-term CTG discount of 50% after deducting his losses. This means that the net taxable capital gains for that year will be:
$1,500 (his year’s capital gains) – $500 (last year’s capital loss) = $1,000
Apply long-term CTG discount: 50% * $1,000 = $500
The $500 net capital gain will then be added to his taxable income for the year.
What Constitutes A Capital Loss On Crypto?
A claim for a Bitcoin capital loss can only be made if a digital asset or private key is taken by an unauthorised party. In order to support a capital loss claim, the following proof will be needed:
- When the private was acquired and when it was lost or stolen.
- The private key’s wallet address.
- The price paid to recover the crypto that was taken or lost.
- The amount of cryptocurrency lost when the private key was lost.
- Evidence of ownership.
- Evidence that you actually own the hardware wallet the crypto was stored on.
- A complete history of transactions from a cryptocurrency exchange to the wallet.
When Should You Report Your Cryptocurrency Tax?
The financial year in Australia runs from 1st July to 30th June, so make sure that you report all cryptocurrency transactions that happened during this period. If you prefer filing your own returns, you need to finish the process by 31st October of the same year, but if you’re using a registered agent, the deadline is usually 31st March of the next year.
Make sure you keep comprehensive and clear records of all your cryptocurrency transactions, including:
- Value of the digital asset at the time of the transaction in AUDs.
- Date each transaction took place.
- Purpose of the transaction, e.g. personal use or donations.
- Details of the buyer or seller.
- Evidence of cryptocurrency trade, digital wallet record, costs associated with crypto tax, exchange records, and invoices for accountants or lawyers.
Late tax reports result in fees and penalties, and ATO could scrutinize your trades more closely.
Tips to Minimize Your Crypto Taxes
To avoid incurring penalties from the ATO and ensure compliance, there are various tactics you can employ to improve your crypto tax return.
- Track all your transactions so that you have all the records when it’s time to file your returns.
- Take advantage of the tax deductions you can claim on your regular income if you run a crypto business.
- Make your intentions clear by highlighting whether the crypto is for personal use or as an investment.
- Hold your crypto for at least 12 months so that you can qualify for the long-term CGT discount of 50%.
- Disclose everything. Some crypto trades may be made anonymously, but ATO can track your transactions.
- Use a trusted and reputable cryptocurrency taxation software that is compliant with ATO requirements.
Frequently Asked Questions
No. The ATO doesn’t consider the movement of crypto between wallets, whether on an exchange or privately, as a capital gains event. You should, however, monitor these transactions and keep records because all automated crypto tax software requires your full crypto transfer history to create an accurate tax report.
Depending on how the cryptocurrency was acquired, capital or financial gains from purchasing, trading, or selling it are either subject to Capital Gains Tax (CGT) or Income Tax. Any discrepancies will be noted and investors and traders informed because the Australian Tax Office (ATO) and Australian cryptocurrency platforms share account and transactional data. When holding cryptocurrency as a long-term investment (until sold or traded) or when the cryptocurrency is regarded as a personal use asset, it is not subject to CGT.
Self-Managed Super Funds (SMSF) are taxed on cryptocurrency holdings at a maximum rate of 15%. The capital gains tax is 10% on digital assets held for more than 12 months, which should be achievable for most since SMSF accounts are a long-term investment strategy.
Receipts for cryptocurrency purchases or trades, exchange records, records of an accountant’s or lawyer’s fees, digital wallet and key records, and any costs associated with software tools that manage tax affairs are just a few of the records and documents that should be kept throughout the financial year to support the filing of a crypto tax return. These documents ought to be preserved for at least five years.
Warren is the co-founder of CoinCryption. He has a passion for cryptocurrency and has been involved in this space for more than 7 years. His other love is digital marketing and has over 15 years of experience.