August 2021

Tax Consequences of Cryptocurrency

Crypto may seem like just another form of money to you, but to the Australian Taxation Office (ATO), it certainly isn’t.

Cryptocurrency is a hot topic of discussion at the moment within the taxation industry.

There are people out there that are making millions of dollars. It is not our position to say whether it is a good idea or a bad idea to invest in crypto, but it is our job to teach you about the tax consequences of the digital asset, which can be fairly complicated.

Crypto may seem like just another form of money to you, but to the Australian Taxation Office (ATO) it certainly isn’t.

From their point of view, cryptocurrency is just another type of asset that people invest in, just like when they invest in shares.  The tax treatment is fundamentally the same.  If you buy for a dollar and then sell for $11 then you have to deal with a ten dollar profit.  That profit could be a capital gain or it could be quantified as simple business income.

So, what makes the difference?

If you are a simple investor in crypto, you may have bought $10,000 worth of the currency, held onto it for five years to then sell it for, say, $25,000.  The $15,000 “profit” from that sale would most likely then be treated as a capital gain.  You would be required to pay tax on half of that capital gain at your marginal rate.

But let’s say you are trading in crypto on a regular basis as well as mining for coins.  This might indicate that you are actually in the “business” of trading crypto (just as people can be in the business of share trading).  In this case, you are taxed on your profits as income and not as capital gains.

This usually wouldn’t make a big difference, as a trader does not tend to hold their stock for more than a year.  This means that they would not be entitled to the capital gains discount, as it requires you to hold the asset for more than 12 months to be eligible.

It is also very important to understand that the ATO receives the trading data from all the crypto trading houses (including overseas trading houses).  You won’t be able to get away without declaring any trading profit from any crypto you own.

If you are unsure as to how to treat your crypto gains and losses, please contact us for advice.

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