Learn how the ATO is responding to cryptocurrency
If you exchanged cryptocurrency for goods, cash, or other cryptocurrencies recently, you need to be aware of how these will be taxed by the Australian Taxation Office. For example, a transaction is normally considered a disposal, for capital gains tax, and you may need to include a capital gain or loss in your income tax return. Transacting with cryptocurrencies is considered as good as transacting with fiat currency. Fiat is the currency established by a country’s government regulation or law.
Discover the 3 top things you need to know about tax and cryptocurrencies.
- Disposal of cryptocurrency
You must report a disposal of cryptocurrency for capital gains tax purposes if you either:
- Exchange one cryptocurrency for another cryptocurrency trade;
- Sell or gift cryptocurrency;
- Convert cryptocurrency to a fiat currency, for example to Australian dollars (AUD).
If you only transfer cryptocurrency from one wallet to another wallet while maintaining ownership of the coin, it is not considered a disposal of cryptocurrency for tax purposes. If your cryptocurrency holding reduces during this transfer to cover the network fee, the transaction fee is a disposal and has capital gains consequences.
- Calculating capital gains tax (CGT) on cryptocurrency
You need to convert your cryptocurrency purchases and sales into AUD to calculate your capital gain or loss. A capital gain or loss is the difference between your:
- Cost base (cost of ownership – including the purchase price of the coin plus certain other costs associated with acquiring, holding, and disposing of it).
- Capital proceeds (what you receive or the market value of what you receive) when you dispose of your cryptocurrency.
If you purchase cryptocurrency using AUD, the amount you pay is included in your cost base (see example 1). If you acquire a cryptocurrency by exchanging it for another cryptocurrency, your cost base is the market value in AUD of the cryptocurrency you used at the time you purchased the coin (see example 2).
Disposing of cryptocurrency purchased with fiat currency.
Tim purchases 400 USD Tether (USDT) for $800 AUD. A few days later Tim exchanges his 400 USDT for 2 Ether (ETH). Tim needs to report his capital gain or loss from the disposal of the cryptocurrency (USDT) in his tax return.
Tim’s receipt shows he used $800 AUD to purchase 400 USDT was charged $5 for brokerage.
Tim’s cost base is $800 + $5 which totals $805.
Tim’s exchange provides a receipt for the purchase of 2 ETH but it does not include prices in AUD. According to his exchange records, Tim exchanged 400 USDT for 2 ETH on 25/06/2021 at 1:30 pm.
At the time of this transaction, the market value of 2 ETH is $900 AUD. Tim’s capital proceeds are $900.
Tim subtracts his cost base ($805) from his capital proceeds ($900) which results in a capital gain of $95.
Tim is not eligible for a discount or exemption.
Tim reports a net capital gain of $95 in his 2021 tax return.
Example 2: Exchanging a cryptocurrency for another cryptocurrency
A few months later, Tim exchanges his 2 Ether (ETH) for 0.08 Bitcoin (BTC).
Tim’s exchange records show he acquired 2 ETH on 25/06/2021 at 1:30 pm for 400 USD Tether (USDT). At the time of the transaction, the USDT had a market value of $900 AUD.
Tim’s exchange charges him a $10 brokerage fee to trade 2 ETH for 0.08 BTC.
Tim’s cost base is $900 + $10 which totals $910.
Tim’s exchange provides a receipt for the acquisition of 0.08 BTC but it does not include prices in AUD. Tim’s receipt shows he disposed of his 2 ETH for 0.08 BTC on 13/07/2021 at 2:00 pm.
At the time of this transaction, the market value of 0.08 BTC is $1,055. Tim’s capital proceeds from the exchange of 2 ETH for 0.08BTC is $1,055.
Tim subtracts his cost base ($910) from his capital proceeds ($1,055) which results in a capital gain of $145.
Tim is not eligible for a discount or exemption.
Tim reports a net capital gain of $145 in his 2020 tax return.
You can claim any current year net capital loss against future capital gains. Report the loss in your tax return so you have it available for future investments.
- Keep records
You need to keep records of all your transactions associated with acquiring, holding and disposing of cryptocurrency. You will need to keep records for five years after you dispose of cryptocurrency.
If you would like to talk more about tax and cryptocurrency or discuss any other financial questions further – get in touch with us.
The information in this article has been sourced from the Australian Taxation Office 2021.
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