In this article, we will answer the 10 most commonly asked questions that we receive about crypto tax in Australia. We will also list some of the best crypto tax tools and software to help calculate your crypto earnings at the end of this post.
You should also be aware the Australian Taxation Office (ATO) is now cracking down on cryptocurrency traders. So, if you're not familiar with your tax obligations, you could be putting yourself at risk.
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10 Common FAQs On Crypto Tax In Australia
Before we get started, it's important to understand how the Australian Tax Office (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."
Without further ado, here are the 10 most commonly asked crypto tax questions:
How Does Cryptocurrency Tax Work?
Cryptocurrency is taxed just like any other traditional asset such as real estate and precious metals. When you sell or trade an asset, you will likely have to pay tax on the difference between the selling price and the price you bought it (excluding exchange fees and commissions etc).
This difference in value is measured in fiat currency and often referred to as Capital Gains Tax. This applies to most countries such as Australian, USA, UK, Canada etc.
Capital gains tax also applies to cryptocurrency at the time it is disposed of. Such as, when you sell it, trade it for another cryptocurrency, or use it for purchase as explained below.
Which Of Your Crypto Activities Are Taxable?
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.
For the majority of Australians, the following crypto activities are deemed to be taxable events:
- Trading cryptocurrency (the process of selling one crypto for another)
- Selling Bitcoin into fiat currency (e.g. Australian Dollars)
- 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
This means, each time you buy, sell, gift, trade, mine or spend cryptocurrency, you are performing a Capital Gains Tax event and some or all of the gains may be taxed.
How Much Crypto Tax Will I Need To Pay?
Knowing how to pay taxes on crypto can be a challenging task if you have just started out with cryptocurrency.
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 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 purchase Ethereum as an investment and sold it later for AUD, or exchanged it for another cryptocurrency coin at a higher price that resulted in a capital gain, you will need to pay tax.
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.
How To Calculate The Amount Of Tax Owed From Crypto Earnings?
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.
Do I Have To File Taxes On My Losses In Cryptocurrency?
Yes, even if you made a loss trading cryptocurrency after selling it for less than what you purchased it for, this is considered a capital loss.
In fact, 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 crypto taxes in the future.
So, it's important to record all your crypto trading activities throughout the year.
Let's take a simple example.
If you bought 1 Bitcoin when the price was $5,000 and sold 1 Bitcoin again for $20,000, you would generate a Capital Gains Tax (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.
Can I Avoid Paying Crypto Taxes?
No, 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.
Do I Need To Record Each Crypto Asset?
Yes. Each cryptocurrency is considered to be a capital gains asset.
So, if you hold several altcoins on your hardware wallet, you need to maintain records of each coin when preparing your crypto tax return.
Do I Need To Pay Tax On Crypto-To-Crypto Trades?
Yes. The exchange 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.
What Information Do I Need To Record?
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.
As mentioned above, your crypto tax is calculated in Australian dollars. So you 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 file export from the crypto exchanges and transaction history from your digital wallet.
Each of these documentation methods will be accepted by the ATO.
Are There Crypto Tax Calculators, Software Or Tools?
Yes, there are several crypto tax software applications online to help track your trades and generate a capital gains report. Each software can assist you to calculate your profit and loss to meet your tax obligations.
A few of the best crypto tax software tools are:
If you're an active trader, using these crypto tax software apps will be highly valuable tools that will remove the headache at the end of the financial year.
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.
Conclusion: Crypto Tax In Australia FAQ's [Answered]
We hope this guide has provided you with a better picture of crypto tax in Australia and a few handy tax software and tools that will help with your tax return.
There are also 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 information herein as fact, we are not tax experts. You should always seek your own financial and tax advice from a professional.
We will leave you with a few questions:
- Will you lodge a crypto tax return this year?
- How are you calculating your crypto tax?
- What crypto tax software are you using?
- Do you use a basic crypto tax spreadsheet?
If you think these 10 FAQs will valuable to a crypto investor that you know of, feel free to share this guide and useful crypto tax tools with them.
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