Cryptocurrency is already a well-established and popular form of
currency. It's not uncommon to see news stories about bitcoin or other
cryptocurrencies, but what many people don't realize is that cryptocurrency
often comes with tax implications.
When it comes to cryptocurrency and tax in Australia, there are
a few key things to remember. First of all, cryptocurrency is considered
property for tax purposes. This means that any gains or losses made from
trading or using cryptocurrency will be subject to capital gains tax (CGT).
Secondly, you're required to declare your cryptocurrency transactions on your
tax return. This includes buying, selling, exchanging, and spending
cryptocurrencies.
For Australian cryptocurrency users, we've put together a
helpful guide to answer some of your tax-related questions:
With the Australian government implementing new laws surrounding
cryptocurrency taxation, it can be difficult to know where you stand on this
issue. This blog post will look at the basics of crypto tax in Australia and
how it affects your finances going forward.
What is cryptocurrency?
Cryptocurrencies such as Bitcoin and Ethereum aren't printed
like dollars and cents. Rather they are virtual currencies that exist in an
entirely digital environment. You can buy them online or at certain physical
locations.
Cryptocurrency is considered property in Australia and the
Australian Tax Office (ATO) treats them this way when it comes to tax. This
means that if you purchase cryptocurrency, then you will be taxed on any
resulting capital gains or losses. However, if you use or hold onto your
cryptocurrency, then there are no taxes incurred at this point.
In Australia, it's important to be aware of any new legislation
surrounding cryptocurrency. More specifically, changes were made regarding the
declaration of cryptocurrency on your tax return and a new capital gains tax
(CGT) rule began back on the 1st of July 2017.
What is Capital Gains Tax, and how does it work?
Capital gains tax (CGT) is the charge that you pay on any
profits made from selling assets or property. This can include things like
shares, real estate, or even cryptocurrency. If you've purchased an asset for
$10,000 and sold it later for $15,000, then you will have to pay capital gains
tax on the $5,000 difference.
When it comes to cryptocurrency, the CGT rule has recently
changed and you now need to declare any cryptocurrency that you purchase or
sell as either a personal or business transaction.
Unless you're engaging in cryptocurrency as a business, then
your transactions will likely fall under the personal category. In this case,
you will be taxed at a flat rate of 15%. On the other hand, if you're engaging
in cryptocurrency as a business, then you will have to declare these
transactions using the same scale as any other business. To get the best
returns from your crypto tax, contact Fullstack for
a simple service you can complete online within minutes.
How can I figure out my Capital Gains or
Losses?
Calculating your capital gains or losses is an important step in
understanding how much money you'll need to pay in tax. However, it's also
difficult because you must accurately determine the original purchase price of
the asset that you're trying to sell. This can be particularly complicated when
dealing with cryptocurrency.
The ATO allows
for a 'Fair Market Value' method. This essentially means that you can use the
price of the cryptocurrency as it is quoted on an exchange at the time of
selling. If you cannot obtain a quote or figure out your capital gains, then you
may be able to work off the cost base and relevant expenses instead.
The amount you pay for a cryptocurrency (in $AUD) is known as
your cost base. This includes any transaction costs incurred by your exchange.
When you cash out your money, the current market value of the
coin (in $AUD) at this moment is your selling price.
Simply stated, capital gain or loss is determined as follows:
Sale Price – Cost Base = Capital Gain/Loss
If you hold the cryptocurrency for more than a year, you can get
a 50% CGT discount if you're an individual or you operate under a trust. Super
funds may benefit from a 33.3% reduction, while corporations aren't entitled to
one in this instance.
In conclusion, it's important to keep track of any and all
cryptocurrency transactions and to remember that in the eyes of the law and for
the sake of taxes - they're considered Capital Gains.