13 Aug How do Taxes Work on Cryptocurrency in Australia?
It’s easy to get excited about cryptocurrency and the promise of fortune and wealth, but before investing in cryptocurrency, it is important to note the factors which may affect your “cryptocurrency tax” in Australia. In addition to this, the Australian Taxation Office (ATO) has begun to partner with many Australian exchanges regarding a data-sharing program. This means that they can easily site and confirm the legitimacy of anything reported or not on your income tax return. The following blog addresses the correct way to accurately record and present your crypto currency earnings to the ATO.
What is Cryptocurrency?
The origins of Crypto
Cryptocurrency was officially invented in 2008 by an unknown individual or collective, although the idea can be linked back to the 1980’s. The original cryptocurrency Bitcoin is the most popular by market capital and was created in the wake of the 2008 global financial crisis as a way people could control their money themselves.
The idea was to create a system that fixed the problems of traditional currencies by putting the power and responsibility in the currency holder’s hands, rather than big corporations and banks. The idea allowed holders to send currency in a manner that was untraceable and didn’t require centralised entities.
How Important are they now?
Cryptocurrency is becoming increasingly important, gaining notoriety as a transformative technology that is revolutionising many industries. Further to this, many industries see opportunity as the dollar has declined over time, certain cryptocurrencies like Bitcoin have outperformed the market and exceedingly smashed expectations.
Along with any increasingly important technology tools, there are unknown dangers and many exploits arising. It is important to weigh up what investing, transacting, and earning from crypto can do for you whilst also accounting for the risks.
Trading Cryptocurrency in Australia
What are the main platforms used in Australia?
With new crypto trading platforms consistently being created, we’ve researched the main platforms used for Cryptocurrency trading in Australia, and for convenience listed them below:
CoinSpot – Well known Australian Cryptocurrency exchange that provides a tax report allowing for easier taxation position calculations.
CoinBase – Biggest international crypto exchange boasting beginner friendly features.
Swyftx – A user friendly and popular crypto exchange in Australia.
Binance – Largest international trading platform and most recognised globally
Cryptocurrency Tax Australia
There are multiple ways to earn from cryptocurrency, below we will cover some of the most common methods including crypto trading, staking, airdrops and mining, and finally how they are reported.
Many investors purchase crypto with the intentions to diversify their portfolio, make money in a volatile market, or hold it long-term.
No Tax implications arise when you initially invest into the cryptocurrency, but it’s important to record the date, value (Aud), units purchased and fees you paid (Aud) upon purchase, and sale of Cryptocurrency. Recording this data is imperative as it means an accurate calculation of Gains, Losses and exemptions on the sale can be determined.
Following this, the capital gain or loss needs to be reported on your individual tax return. The process to work out the exact amount to be included on your tax return is as follows:
- Cost Base Calculation
Cryptocurrency Purchase + Costs Including Brokerage Fees/Gas Fees + Cost of Sale Including Brokerage Fees/Gas Fees = Cost Base
- Capital Gains Calculation
Sale Price (not Including any additional Fees) – Cost base = Capital Gain or Loss
Please note that standard CGT rules apply and if you hold the currency for 12 months any sale will get discounted by 50% in your income tax return.
Direct Tax Effect
When you include your final capital gain or loss on your tax return, gains are included in forming your assessable income, whilst losses are used to offset any future capital gains.
Airdrops and Staking
Airdrops involve sending a small amount of a cryptocurrency randomly to a user’s wallet. This is a common practice for new coins to increase exposure and advertise.
Staking is the process of locking your crypto in a pool to support the security of the network and in return receive a small amount of the cryptocurrency in exchange.
Direct Tax Effect
The ATO stipulates that any coins received should be recorded as other income in your income tax return. Further to this, investors should briefly record details of how many units were received, monetary value (Aud) and date. Upon sale of these coins, it’s a requirement to declare the difference between when you received the coin to when you sold as capital gains or losses on your tax return. Capital gains will form part of your assessable income and any losses will be used to offset future gains.
Tips and Tricks
It’s difficult to determine exactly the value of each individual coin earnt while staking. A way of determining this could be dividing coins earnt by total monetary value earnt on the completion of each financial year. This doubles as your cost base for the coins earnt in that financial year (use this in your CGT calculation when you sell), as well as the amount reported on your income tax return as ordinary income.
Cryptocurrency Mining is the process of receiving a crypto as a reward for completing blocks of verified transactions.
The ATO takes a different stance on the taxation of cryptocurrency mining dependent on whether you are a hobby miner or mining as a business. The main differences are outlined below but its best to consult a tax professional on a regular basis to determine whether you are interpreting this correctly.
Hobby Miners –
Someone who participates in cryptocurrency mining as an interest rather than a business-like manner, usually initial investment will be a small at home setup with the intention to accumulate coins rather than sell.
Upon receiving cryptocurrency, the ATO treats this as a Capital Acquisition and outlines that your cost base will be zero for the asset, meaning whatever you sell for is your capital gain. Unfortunately, you can’t claim any expenses incurred in pursuing a hobby so you can’t offset gains with your computer or electrical costs.
Please note standard CGT rules apply and if you hold the currency for 12 months, any sale will get discounted by 50% in your income tax return.
Mining as a business –
A person who is conducting their mining in a commercial manner will usually have an extensive initial investment and the operation will be conducted within a dedicated space. In most cases the mined currency will be sold for profit rather than accumulation.
If you are mining as a business, in addition to obtaining an ABN, the cryptocurrency will be taxed according to the trading stock rules. Sale of coins will be treated as income whilst costs involved in acquiring the cryptocurrency will be tax deductible. This means you can claim electricity, rental expenses, and depreciate equipment.
Please note you are not eligible to receive a CGT discount as a business.
Important Links –
You can refer to the following link if you need assistance determining the difference between hobby and business mining.
Should you require any additional assistance please don’t hesitate to contact us.