Overview and FAQs
In a highly speculative market and the emergence of Cryptocurrency in the mainstream media in 2017, the potential investment opportunities for everyday Australians has become a new phenomenon. With the significant increases in the value of Cryptocurrencies like Bitcoin and Ethereum, many Australians have moved away from the typical investing in shares and property and have delved into the realm of Cryptocurrencies as their investment choice.
With the help of mainstream and social media, there are many investors around the world who have taken the plunge and invested in the various Cryptocurrencies and the new technology it brings to the world.
This like many other asset classes prior has recently caught the attention of the Australian Government and Australian Taxation Office (ATO). The ATO released guidelines on the taxation of Cryptocurrencies and has recently announced its specific task force that will be investigating Australian’s who have invested Cryptocurrency.
Whether you are a Cryptocurrency Trader, Investor or miner for tax purposes, keeping complete and accurate records of your transactions will ensure that you are well prepared in declaring your Cryptocurrency gains or losses on your income tax return.
It is your (the taxpayer’s) responsibility to keep these records to verify the validity of the transactions and substantiate the claims in order to declare your income to the ATO.
Information that needs to be recorded and maintained includes:
- The date of the transaction/s
- The amount of the transaction in Australian Dollars (this can be taken from a reputable online exchange)
- The Australia dollar value of both Buying and Selling Prices if selling between Cryptocurrencies
- Evidence of what the transaction was for
- Who the other Cryptocurrency party in the transactions was
Many Crypto exchanges also provide the option to export your trade history into an excel CSV file.
Below we have compiled an list of the most commonly asked questions on Cryptocurrency Tax in Australia.
Do I have to declare my Income or Loss of Cryptocurrency Assets in my Tax Return:
- Yes, for all transactions relating to Cryptocurrency trading and investing you will generally need to declare this in your Income Tax Return.
- A Capital Gains Tax asset is defined under Australian tax law as being ‘any kind of property’
- As such Bitcoin and other cryptocurrencies are defined as property for under Australian Tax Law
- The first tax Determination issued on Bitcoin was back in 2014 which can be seen here: TD 2014/26
When I trade one Cryptocurrency to another Cryptocurrency is this a taxable event?
- As per the ATO’s current guidelines, Crypto to Crypto transactions are taxable events. For example, if you trade Bitcoin (BTC) for Ethereum (ETH) you must work out your gain or loss depending on what you originally purchased your BTC for in Australian Dollars (AUD) and what you sold your ETH for in Australian Dollars (AUD)
Can I pay my Tax with Cryptocurrency?
- At this stage we do not believe that the ATO accepts any form of Cryptocurrency payments for a Taxpayer’s Tax liability.
Can I claim transactions fees, including withdrawals and deposits for buying/selling/sending my Cryptocurrencies?
- Yes, fees that are related to purchasing and selling your Cryptocurrency can be included when calculating your gain or loss.
- This also includes fees when withdrawing your Cryptocurrency to and from wallets or other exchanges.
I received and paid using Bitcoin as a way of payment for the goods or services. What do I do?
- If you received or used Bitcoin for goods and services provided as part of your business, you will need to declare the income or expense in Australian dollars as part of your ordinary income.
- When receiving or paying for goods and services in Bitcoin or other Cryptocurrencies, you will need to ensure that you consider the GST implications of doing so.
- If your business is required to be registered for GST then you will need to ensure that you account for the GST portion of the received sum of the Bitcoin or other Cryptocurrency on your supply of goods or services. The value of the Bitcoin or Cryptocurrency received will ordinarily be equal to the fair market value at the time of the transaction.
I borrowed money to pay for my cryptocurrencies can I deduct this?
- A simple answer is Yes, interest paid on money borrowed to invest in Cryptocurrency can be brought to account as a specific tax deduction. Evidence will need to be proven that the money loaned was used specifically to invest in Cryptocurrency.
Aren’t cryptocurrencies anonymous, how will the ATO know if I made money?
- In April of 2019 the ATO announced their Cryptocurrency data sharing program with Australian Cryptocurrency exchanges. As all Australian exchanges are required to be registered with AUSTRAC and ASIC the linking between these organisations has made it easy for the ATO to obtain this information.
- The ATO has declared that they have received transaction data, including, trading, deposit and withdrawal history as well as identifiable information relating to you such as your name, date of birth, address and contact information. This information was part of the Know Your Customer (KYC) that you had to provide on opening an Australian Cryptocurrency exchange.
- The data the ATO has retrieved is as far back as 2014.
- Cryptocurrencies including Bitcoin are not as anonymous as most people may believe. The transactions on the distributed ledger technology are public i.e. On the Bitcoin blockchain and can be traced back to wallet addresses. If the identity of the wallet holder is obtained it is possible to identify the transactions of that wallet holder.
What happens if I don’t lodge my Cryptocurrency trading or investing to the ATO:
Eventually the ATO will issue letters to taxpayers they believe have been involved with Cryptocurrency from the data they retrieve.
If these letters are ignored the ATO can issue aa default tax assessment on your behalf based on what they believe is your tax liability. It is then up to you to prove the ATO wrong.
As the ATO does have limited information relating to overseas exchanges, the ATO may most likely count withdrawals from one exchange to another as a SALE.
This of course is incorrect as we know that you are only transferring the coin around.
By using this method the ATO could make a make false assumptions and therefore detrimentally amend your tax return to a large payable when this is not the case.
What are the penalties if I do not declare my Cryptocurrency Gains to the ATO?
- The ATO takes non disclosure very seriously.
- If the ATO finds that you have not disclosed your Income and Capital Gains Taxes in your Income Tax Return, this may lead to a potential audit.
- The ATO may impose penalties and interest if you are found to “Intentionally Disregard” (75% shortfall tax penalty) or “Failure to take reasonable care” (25% of the shortfall tax).
- This means that if you have a $10,000 tax bill the penalty could be as high as $7,500 on top of the $10,000 that you owe for tax.
- This also includes general interest charge which is currently 7.89% per annum.
Can my current Accountant calculate my Cryptocurrency transactions?
- As the taxation requirements surrounding Cryptocurrency in Australia is in its infancy stages there are a limited number of Accountants who have experience and expertise in the Cryptocurrency space as well as the taxation surrounding it.
- The taxation of Cryptocurrency can be a very long and complicated process as it requires the taxpayer and Accountant to review many aspects of the individual taxpayer’s personal circumstances, including their intention, number of transactions, participation in Initial Coin Offerings (ICO), mining income, Margin and CFD Trading, DEFI Lending and Capital Gains Tax.
- You will need to ensure that your current accountant understands all of these aspects of Cryptocurrency before engaging them to prepare your Income Tax Return.
- If they ask you what a wallet or an hardfork is, its probably best to seek advice from our firm who understands all these issues.
The money I put in to buy crypto has been taxed. How is that filtered in a way that I am not paying double taxes on the same income.
It is not double taxed as you are only taxed if you make a profit, which could be considered as ‘fresh’ money. If you put in $10,000 of AUD from your normal working job to buy/sell/mine crypto and pull out $15,000 then you would only be taxed essentially on the $5,000 profit (all things considered that you have sold out of everything) you don’t pay tax on the original $10,000 you put in.
If I just buy and hold and don’t go to Fiat do I still have to pay tax on the gains?
Only if you have traded between different coins as well. So as an example if you bought BTC to send to Binance to buy BNB then you would need to calculate the profit or loss you made from the initial BTC purchase to the sale price of BTC when you sold it into BNB.
(the gain/loss will of course vary depending on the amount of time between buying and selling the BTC to BNB)
How can we help?
Crypto Tax Australia understands the complicated taxation requirements surrounding Cryptocurrency investing and trading, please get in touch with us so we can discuss any concerns you may have.
95% of our clients are Cryptocurrency Traders, Investor, Miners and Businesses so we live in this world and know exactly how to treat all of your different Cryptocurrency investments.