With the growing popularity of cryptocurrency over the past year, it seems like everybody has had it brought up to them in one way or another. The exponential increase of prices throughout a large majority of tokens has gained the attention of many, with most quite eager to get involved. Due to the increasing digitalization of the world, blockchains and cryptocurrency are appearing more and more attractive. This is most evident in the news of El Salvador becoming the first country to adopt Bitcoin as legal tender, confirming the momentum the asset is gaining.
Despite the overwhelming interest in the crypto market, often neglected in discussions are the rules and discrepancies governing crypto-assets. The ATO has recently released a guideline of how they view these assets and the related tax obligations in the various cases.
These guidelines will provide an indication of the taxation cases, although your individual profits will be determined by your taxable actions with the assets. Proceeding with your cryptocurrency profits without proper management can lead to an excess tax payment or an ATO audit.
Be sure to check with a knowledgeable tax consultant.
The taxation scenarios of cryptocurrency will vary depending on whether you are an investor or trader. If you are an investor in cryptocurrency, this infers that you will typically be looking to get into the market and purchase tokens with the intention of holding these investments for a reasonable period. In turn, not looking for short term gains but investing in the project. Whereas a trader purchases cryptocurrency with the intention of selling or trading within the short term. This may provide the ability to claim deductions for any equipment, power, fees or courses. You may even be able to value your stock on hand of Cryptocurrency at market value as at 30 June.
Additionally, the ATO’s position on mining cryptocurrency is that it is transacting like a business. With any income you derive from mined coins being subject to taxation. Although, similar to trading, as you are operating a business you may be allowed to claim deductions for any equipment, power and fees for transferring cryptocurrency and operating your business.
Finally, the intention of purchasing cryptocurrency as a personal use asset. This is the assumption that purchasing less than $10,000 of cryptocurrency could render it tax-free. However, the ATO have very firm rules in place as to what defines a personal use asset. Therefore, it is important to consider each individual case before attempting to claim cryptocurrency as a personal use asset. The typical instance for applying for this type of exemption; is that the crypto-asset is used to as currency to make purchases for personal use cases. Although, if this cryptocurrency has been converted there may well still be an argument that you have disposed of an asset. It is a relatively tenuous position.
Similar to other assets, when cryptocurrency is bought and a profit is made on that asset, the profit is then taxable. Any action where you trade, sell (convert to a fiat currency) or gift a crypto asset, you are required to calculate the corresponding capital gains on that action. Capital Gains Tax (CGT) is only applicable on the profit made by the taxable event. For example if you have purchased 1 cryptocurrency token for $100 and then sell it for $200, you will only be required to pay CGT on the $100 you profited in the transaction at your marginal tax rate.
Additionally, if you have held a crypto-asset for a period of 12 months or longer, a 50% CGT discount is available to the asset. Therefore, only 50% of the profit gained is subject to CGT. Take the example above, the CGT would only be paid on $50 in this situation.
Furthermore, if your asset has lost value from the time you initially purchased it, this scenario is known as a capital loss. Capital losses may be used to offset capital gains from another crypto or capital asset transaction. If you have sold token A for a loss of $50 and sold token B for a profit of $100, your total value required for the capital gains tax will be $50. Losses need to be deducted first before applying the 50% discount on assets held over 12 months
Regardless of your purpose for acquiring cryptocurrency, you are required to keep and maintain proper records of your taxable actions.
The requirements for the record as stated by the ATO are as follows:
- Transaction dates
- Value of the cryptocurrency in AUD$ at the time of the transaction
- Who the other party in the transaction was, and what the transaction was for
Typically, the exchange platforms will provide access to the list of transactions with the necessary information. Additionally, exchange records, purchase receipts, digital wallet records or accountant records can be used.
Furthermore, ensure that ALL taxable actions are recorded, as the ATO has explicitly come out and said that they will be targeting cryptocurrency investors/traders due to the hype and profits in the market. You doing the initial calculations of all transactions will also save your accountant time, and you money on their fees.
Therefore, it is highly recommended that you seek professional advice from an accountant. With a relatively new asset class, preparing and analysing the data can be confusing. If you are uncertain of any of the tax requirements regarding cryptocurrency, ask for advice.
The volatile and highly exhilarating cryptocurrency market is concerning enough, don’t let hidden tax details ruin your experience in the market. Just know that you have certain obligations regarding your cryptocurrency assets and that they will need to be dealt with.
Here at Rede Accountants we have the experience and expertise to deal with all your tax requirements surrounding the crypto-asset space.
Located in Robina on the Gold Coast, we are here to assist your every tax need.
If you require any further information or pose any questions please contact us on 1300 399 599.
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