Crypto Tax in Australia

Defining crypto in australia

The Australian Taxation Office (ATO) does not provide a specific legal definition of crypto in Australia. However, it provides guidance on how crypto is treated for tax purposes. The ATO considers crypto a digital or virtual currency that uses cryptography for security and operates on a decentralized network, typically a blockchain.

The ATO views crypto as an asset for tax purposes rather than as a legal tender or currency. This means that the tax treatment of crypto transactions in Australia is primarily based on the rules governing the taxation of assets and investments.

Under Australian tax law, crypto is generally treated as property or a capital asset. This means that the disposal or sale of crypto can give rise to capital gains or losses, and the tax consequences depend on the individual’s circumstances and the holding period of the crypto.

The ATO also guides specific types of crypto transactions, such as crypto trading, mining, initial coin offerings (ICOs), and airdrops. It outlines the tax implications and reporting obligations associated with these activities.

It is important to note that the legal and regulatory landscape for crypto in Australia is continuously evolving. The Australian government and regulatory bodies, including the ATO, monitor developments in the crypto space and may introduce new legislation or guidance to address emerging issues.

Taxation of crypto transactions

CGT

In Australia, crypto is generally considered an asset for tax purposes. Individuals who dispose of their crypto may be subject to Capital Gains Tax (CGT) on the profits made. CGT applies when there is a disposal event, such as selling, exchanging, or gifting crypto. The taxable capital gain is the difference between the crypto’s cost base (purchase price) and the sale proceeds.

Calculation Of Capital Gains
Under CGT rules, the taxable capital gain is calculated by subtracting the cost base of the crypto from the sale proceeds. The cost base includes the original purchase price of the crypto, as well as any additional costs incurred during the acquisition process (e.g., transaction fees).

For example, let’s say you purchased 1 Bitcoin for AUD 10,000 and sold it for AUD 20,000. The capital gain would be AUD 10,000 (AUD 20,000 – AUD 10,000).

Holding Period And Discount Method
In Australia, if you hold the crypto for at least 12 months before selling or disposing of it, you may be eligible for a CGT discount. This means that only 50% of the capital gain will be included in your assessable income.

Using the previous example, if you held the Bitcoin for more than 12 months before selling it, the assessable capital gain would be AUD 5,000 (50% of AUD 10,000).

Reporting Capital Gains
When it comes to tax reporting, capital gains from crypto transactions need to be included in your annual income tax return. The ATO has specific labels dedicated to reporting capital gains from crypto activities, ensuring proper disclosure and compliance.

It is essential to maintain accurate records of your crypto transactions, including the dates of acquisitions and disposals, the values of the cryptocurrencies at the time of the transactions, and any associated costs. These records will help accurately calculate and report your capital gains for tax purposes.

Personal Use Assets
Cryptocurrency used for personal transactions and not connected to any business or investment activity may be considered a personal use asset. If the disposal proceeds are AUD 10,000 or less, CGT does not apply. However, CGT will still be applicable if the crypto is acquired or used as part of a profit-making scheme, such as trading or mining.

Trading and mining crypto

Trading and mining crypto are two common activities in the crypto ecosystem. Both activities can have tax implications, and it is important to understand the tax considerations associated with trading and mining crypto.

1. Trading Cryptocurrency
Trading crypto involves buying and selling digital assets on exchanges or peer-to-peer platforms to take advantage of price fluctuations. From a tax perspective, trading crypto is typically considered a business or investment activity. The tax treatment differs from that of holding crypto as a capital asset.

• Income Tax: Profits derived from crypto trading are generally considered assessable income and subject to income tax. This means that the profits will be included in your taxable income and will be taxed at your applicable income tax rate. It is important to keep track of all trading transactions, including the purchase and sale prices, dates, and any associated fees.
• Deductions: Expenses incurred in the course of crypto trading may be tax-deductible. These include trading fees, transaction costs, and relevant software or subscription fees. It is advisable to keep accurate records of these expenses to claim deductions when filing your tax return.

2. Mining Cryptocurrency
Mining crypto involves validating transactions on a blockchain network and earning rewards in the form of newly minted coins or transaction fees. In the context of taxation, mining crypto is generally considered a business activity.

• Income Tax: The rewards received from mining crypto are considered ordinary income and should be included in your assessable income for tax purposes. The value of the mined crypto at the time of receipt is used to determine the taxable income.
• Deductions: Mining expenses, such as electricity costs, mining hardware, maintenance expenses, and relevant operational costs, may be tax-deductible. When filing your tax return, it is important to keep accurate records of these expenses to claim deductions.

GST and crypto

As digital currency becomes more common-place in a business context both in terms of trading and using such assets for payment in Australia, one question that commonly arises for those businesses will no doubt be: does GST apply to crypto assets? The answer, according to the ATO, depends on the context in which the crypto assets are being used.

The many types of crypto assets can be broadly divided into 2 categories, those considered to be digital currency and those that are not. Generally, digital currency is anything that uses cryptography and block chain technology to secure and record transactions (eg Bitcoin and Ethereum) and encompasses the following characteristics:

• fully interchangeable with the same digital currency;
• can be provided for payment;
• available to the public free of any substantial restriction;
• is not denominated in any country’s currency, or is denominated in a currency that is not issued by or under the authority of an Australian or foreign government;
• does not have value that is derived from or dependent on anything else;
• does not give entitlement to receive something else unless it is incidental to holding it or using it as payment;
  if supplied, would not be an input taxed financial supply for a reason other than being a supply of digital currency or money.

Crypto assets that are not considered to be digital currency include non-fungible tokens (NFT), Stablecoins, and Initial coin offerings. NFTs are not considered to be a digital currency because they cannot be interchanged with other NFTs, the supply of which are usually deemed to be taxable unless they are GST free. Stablecoins are crypto assets that are pegged to the value of some other asset such as a commodity or more generally a fiat currency (ie US dollar), and are not considered to be a digital currency.

In addition, initial coin offerings are not considered to be digital currencies if they are a security (including a share or managed investment scheme), a derivative, or gives a right or entitlement to goods and services. If an initial coin offering is a security or derivative, the supply will be input taxed unless its GST free. If the offering gives a right or entitlement to goods and services, the supply will be taxable, unless the entitlement is incidental or the supply is GST free. It should also be noted that the ATO does not consider loyalty points that can only be redeemed for goods and services under the loyalty scheme and in-game tokens that cannot be used outside the game, to be digital assets.

For those trading in digital currency in exchange for money or digital currency with an Australian resident who is located in Australia, the supply will be an input taxed financial supply and GST does not need to be paid. Digital currency traded in exchange for money or digital currency with a non-resident (not located in Australia) would be GST free. If the location of the counterparty to the digital currency transaction cannot be identified, taxpayers can use the location of the digital currency exchange to treat the supply as either GST free (if the exchange is not located in Australia), or input taxed (if the exchange is located in Australia).

Digital currency used to pay for goods and services in a GST registered enterprise will be treated in the same way as money. If a taxable supply is made and digital currency is received as payment, the GST amount for that payment will need to be included in the relevant BAS and must be in Australian dollars. Conversely, where digital currency is used to make a purchase in a GST registered enterprise and a GST credit is claimed, the GST amount of the credit in the BAS must also be in Australian dollars.

The exchange rate can either be obtained from a digital currency exchange website, or agreed on between supplier and recipient. For taxpayers that account for GST on a non cash basis, the day to convert the amount is the earlier of the day the payment was received, or the transaction date or invoice date. The conversion date for taxpayers that account for GST on a cash basis can be the transaction date, invoice date or the date any of the payment is received.