Are you wondering if you need to pay tax on cryptocurrency in Australia?
In this article, we will answer the 10 most commonly asked questions about crypto tax in Australia. If you have used an Australian cryptocurrency exchange within the last year, it is highly likely you will need to declare your profit and losses in a tax return. For most individuals in Australia, any involvement with crypto will gain the attention of the Australian Tax Office (ATO). Some of the best crypto platforms in Australia have in-built tax tools but users still need to have a thorough understanding of the taxation requirements.
Before we get started, it's important to understand how the ATO defines the tax treatment of cryptocurrency in Australia. Essentially, it is classified by the Government as a "digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government."
Any reference to 'cryptocurrency' therefore includes Bitcoin and other altcoins that you might be holding in your hardware wallet or crypto trading platform. The majority of people that buy or sell cryptocurrency will likely be subject to the ATO's tax treatments under Capital Gains Tax (CGT) laws or as taxable income under a business.
Assets that have been acquired since 1985 are subject to CGT unless specifically excluded. This means any capital asset such as real estate, shares and cryptocurrencies that makes a capital gain or loss is applicable under the code. The difference between the asset cost to acquire and the sale price to sell is referred to as the capital gain or loss.
The sale of an asset will need to be declared as part of an income tax return and to pay tax on the capital gains. The capital gain is considered income and can increase the amount of tax to pay. Any loss that is incurred can be used to reduce a capital gain.
Assets that are used for personal use such as your house, car, furniture and jewelry are exempt from CGT. Furthermore, any asset that depreciates and is used for taxable purposes such as an investment property, business computers and equipment and work vehicle expenses are not subject to CGT.
The short answer is that most individuals and businesses must declare their cryptocurrency activities for the financial year. The tax treatment of cryptocurrencies depends on whether the individual is classified by the ATO as an investor or trader.
- Investor: any capital gains resulting from buying and selling cryptocurrencies will be taxed. There is a 50% CGT discount that you may be eligible for holding the asset for more than 12 months.
- Trader: you will be taxed as a sole trader conducting a business to generate an income through trading cryptocurrencies. Business expenses involved with trading crypto as a business are tax-deductible.
Anyone that is involved in acquiring or disposing of cryptocurrency is subject to tax implications. These can vary depending on the nature of your circumstances and your marginal tax rate. Each time you buy, sell, gift, trade, mine or spend cryptocurrency using a debit card, you are performing a Capital Gains Tax event and some or all of the gains may be taxed.
For the majority of individuals, the following crypto activities are deemed to be taxable events:
- Trading cryptocurrency (the process of selling one crypto for another)
- Selling crypto to AUD or another coin
- When you give cryptocurrency as a gift to a friend or family
- Receive cryptocurrency as earnings (e.g. crypto mining)
- Purchasing goods and services with cryptocurrency
It can be a challenging task to know how much tax you need to pay on cryptocurrency transactions. If you are buying and holding a crypto asset and then selling it at a future date, this will incur a capital gains tax. It means you will likely have to pay tax on it. Although, the amount of crypto tax you will pay depends on a few factors:
- Are you an Australian resident for tax purposes?
- How much income do you earn?
If you're a cryptocurrency enthusiast and have invested or traded in digital currencies, then you will be taxed on any capital gains resulting from your crypto trades. As an example, if you purchased Ethereum with AUD as an investment and sold it back for cash or another cryptocurrency at a higher price that resulted in a capital gain, you will need to pay tax on the gain.
However, if you hold your crypto asset for more than 12 months, you could be entitled to a 50% capital gains tax discount. This means that even if the market value (in AUD) of your crypto portfolio changes, you don't make a capital gain or loss until you have disposed of your digital assets.
Once you've calculated the capital gain amount, you can figure out the tax owed by referring to your marginal income tax rate. Capital gains in Australia are taxed at the same rate as the marginal income tax rate.
The amount of tax you pay on your crypto earnings can vary depending on the type of activities you undertake. In Australia, profits and losses as a result of cryptocurrency activities need to be calculated in Australian Dollars. So you will need to convert the crypto assets price at the time of purchase and selling into AUD.
The difference in fiat value between these dates will be subject to capital gains tax. This includes when you swap cryptocurrency in exchange for AUD, convert to another coin or purchase goods and services with cryptocurrency.
If you make a loss trading cryptocurrency after selling it for less than what you purchased it for, this is considered a capital loss. It is in your own best interest to record any capital loss as it can be used to reduce future capital gains. This can offset your taxable income such as future tax returns, therefore, it is very important to record all your crypto trading activities throughout the year.
For example, if you bought 1 Bitcoin when the price was $5,000 and sold 1 Bitcoin again for $20,000, you would generate a CGT event. Therefore, you will likely need to pay tax on the $15,000 gain in price measured in Australian Dollars, at the time you sold it.
It is becoming increasingly difficult to avoid paying tax on your crypto holdings. Each time you purchase crypto using fiat, or convert a crypto coin to another, a digital trail is left behind. Due to pressure from local authorities, crypto exchanges are being requested to hand over their data on their users to tax authorities.
In a report from Globe Newswire, the ATO is expecting to collect more than $3 Billion in tax fines from crypto traders and investors this financial year alone. Furthermore, the Australian government is also allocating a billion dollars to identify anyone who has not declared their trading activity and filed their taxes.
Each cryptocurrency transaction is considered to be a capital gains asset and can be subject to taxable events. If you hold several altcoins on your hardware wallet, you need to maintain records of each coin and all transactions involving that asset when preparing your crypto tax return.
The swapping of one cryptocurrency to another is considered a capital gains tax event. As such, the tax office will treat the sale of the coin at the market price in fiat currency of each asset at the time of the transaction. For example, if you sell Bitcoin for Ethereum, tax agencies would treat this as a sale of Bitcoin at the market price of the Ethereum that you received in your exchange wallet.
You need to keep and maintain records of the date of the transaction (buy and sell), the cryptocurrency asset(s) and who you traded with. Your crypto tax is calculated in Australian dollars and will need to convert the crypto into Aussie dollars at the time of the transaction (for purchase, sell and trade events).
This information may be included within a payment receipt, .csv format files export from the crypto exchanges and transaction history from your digital wallet. Each of these documentation methods can be accepted by the ATO.
There are several crypto tax software applications online to help track your trades and generate a capital gains report. Each software can assist with calculating profit and losses to meet your tax obligations. A few of the best crypto tax software tools for use in Australia are Cryptotaxcalculator.io, Koinly and CoinTracker.
If you're an active trader, using these crypto tax software apps will be a highly valuable tool to remove the headache of preparing a crypto tax return. Although, if you prefer to calculate your taxes by yourself, you can always choose to do it the old-fashioned way using a crypto tax spreadsheet to record each of your trades.
For investors that have used a self-managed super fund to purchase crypto, certain exchanges in Australia have in-built reporting and taxation tools to make it easier to report data for taxation purposes. For more information, read our beginners guide on cryptocurrency SMSF.
We hope this guide has provided you with a better picture of the tax requirements when buying cryptocurrencies in Australia. There are some crypto exchanges in Australia that provide a free tax calculator such as Swyftx and Independent Reserve that you can also consider. These digital providers have a tax report feature to export your transactions. As regulations are constantly changing, we encourage you to visit the ATO’s guide to cryptocurrencies for more information.
Disclaimer: Please do not rely on the general information herein as fact, we are not tax experts or financial advisors/planners. You should always seek your own financial, legal and tax advice from a professional.
Kevin started in the cryptocurrency space in 2016 and began investing in Bitcoin before exclusively trading digital currencies on various brokers, exchanges and trading platforms. In 2019, he started HedgewithCrypto to publish informative guides about Bitcoin and share his experiences with using a variety of crypto exchanges around the world.