Crypto Tax Guide Australia

Is Cryptocurrency taxed in Australia? Yes!

In Australia, cryptocurrency is treated as an asset and is subject to Capital Gains Tax and Income Tax. With the ATO focusing on cryptocurrency, it’s crucial that you know how crypto taxes work. If you bought or sold cryptocurrency during the previous financial year, you’ll need to report your crypto holdings on your income tax return.

But beware: CGT is not always relevant. If you are acquiring the cryptocurrency in order to trade it, you might be deemed to be running a business of trading cryptocurrency. In this case you will pay income tax on the business profits (which is usually less advantageous than CGT because the 50% CGT discount cannot apply).

Will the ATO know about my crypto? Yes!

If you have a crypto or any digital asset account with an Australian cryptocurrency designated service providers (DSPs), the ATO will most likely already have your information.

• The ATO has a data sharing program with all Australian exchanges.
• The ATO knows has crypto transaction data from as far back as 2014.
• The ATO has the Know your customer (KYC) information you provided when signing up for any Australian exchange or wallet.

In 2020, the Australian Taxation Office sent out a letter to 350,000 crypto investors informing them that cryptocurrencies were taxable and that failing to report could lead to tax evasion penalties. In this case, recipients had 28 days to disclose their cryptocurrency trades.

The ATO is obtaining data from crypto exchanges and comparing it to prior tax returns to determine tax liability. If you fail to declare cryptocurrency gains, you may be penalized with a 75 percent penalty of the outstanding tax debt plus taxes and interest on the deficiency.. Read the full press release here.

How does Australia tax Cryptocurrency?

The Australian government does not consider bitcoin and other cryptocurrencies to be money or foreign currency. The ATO classifies crypto as a commodity for Capital Gains Tax (CGT) purposes, but it can also be treated as Income Tax. Your tax rate is determined by your ‘intentions’ and setup.’

Am I an investor or trader?

Investor: An investor is simply someone who invests in the hope of receiving a return in the future. An investor trades cryptocurrency as part of their personal investment ‘stock’ with the aim of gradually amassing wealth over an extended period of time while making profits from long-term capital gains. Most Australian crypto users fall into this category, and any earnings will be subject to Capital Gains Tax. Depending on how the cryptocurrency was acquired, Income Tax may also apply.

Trader: A trader in crypto is a business person who makes money by trading. A trader in crypto is defined as someone who operates a business and trades for profit. The ATO considers you to be a trader if you operate a cryptocurrency trading, forging, or mining firm, trade frequently for short-term gains, or run a cryptocurrency exchange. Proceeds are taxed as Income.

Investors can access the 50% Capital Gains Tax Discount, whereas Traders can not.

The ATO views crypto users as either a trader, or an investor for tax purposes. Read here for more advice from the ATO.

Capital Gains Tax

When you sell your cryptocurrency, a Capital Gains Tax (CGT) event occurs. Dispose refers to selling, giving, trading, switching, converting, or utilizing crypto to acquire objects. Importantly, if you keep your cryptocurrency for 1 year before selling it, you’ll pay half of the usual CGT rate on its profits.

There are 5 ways you could pay capital gains tax on crypto in Australia:

1. Sell crypto
2. Exchange crypto for fiat
3. Exchange crypto for crypto including stablecoins
4. Buy goods and services (if not seen as a personal use asset)
5. Gift crypto

Capital Gains Tax Rate

You pay the same rate of Capital Gains Tax if you’re buying crypto as an individual (investor). The percentage you’ll pay on Capital Gains Tax is equal to your income tax rate, which is determined by your entire yearly earnings.

How do I work out my Capital Gains Tax?

A capital gain in cryptocurrency is the same as with any other type of asset – such as a stock. The difference in value from when you acquired your crypto to when you sold it is called a capital gain. If the proceeds from the sale are greater than the cost base (in total) , you’ll make a capital gain.

The ATO has the following instructions for calculating and reporting crypto capital gains: you must first calculate your cost base. This is the price of your cryptocurrency plus any expenses involved in acquiring or removing it, such as transfer fees.

crypto cost price + fees = cost base

Gains: You’ll have to pay tax on part or all of your capital gain if you sell cryptocurrency.

CGT Discount: If you keep your cryptocurrency for more than a year before selling or trading it, you may be entitled to a 50% CGT discount. Even if the market value of your cryptocurrency varies, you will not make a capital gain or loss until you sell or trade your assets.

Losses: In other words, if the profits from the sale of your crypto are less than what you paid to acquire it initially, you’ll lose money. If you have a net capital loss, you may deduct it against any other class of asset gains and even carry it over to future years.

If you lost your crypto, or it’s stolen, you might be able to claim a Capital Loss as well.

Income Tax

The ATO has already stated that it will not pursue taxpayers who have decided to declare cryptocurrency as income. However, there are circumstances in which crypto is considered revenue, especially if the ATO considers you a trader rather than an investor. You’re less likely to make money from cryptocurrencies in Australia as an investor, but here are a few ideas:

• Getting paid in crypto (like a salary)
• Staking rewards (like dividends)
• Airdrops (like bonuses)
• DeFi interest (like bank account interest)
• Referral fees (like commission)

Tax Free

The following crypto activities are tax-free in Australia:

• Buying crypto
• Holding crypto
• Token & coin swaps
• Acquiring crypto as a gift
• Acquiring crypto from hobby-level crypto mining
• Transferring crypto between you own wallets
• Buying goods and services under $10,000, if it’s a personal use asset
• Donating crypto to registered charities

How do I report my crypto tax activity?

The ATO is interested in your crypto activity, particularly with respect to income and capital gains. You’ll have to disclose both on your annual Tax Return, just like you would for normal income, gains, and losses.

Tax deadline

The Australian tax year runs from July 1 – June 30 the following year. If you are lodging your own tax return for July 1, 2020 – June 30, 2021, it needs to be filed by October 31, 2021. Lodging through an accountant? You have until March 31 2022 to file.

Filing with myTax (most popular)

Once you’ve obtained your crypto tax calculations (which you can do through our application). The simplest approach to submit your taxes in Australia is through myTax, which may be accessed from your myGov account.

Old school filing with printable forms

You can also submit the forms by mail if you choose. You’ll need two different forms, one for income and one for capital gains.

Crypto income is declared on question 2 of Tax return for individuals 2020 (NAT 2541).

Crypto Capital Gains: You’ll need to select YES on question 1 of the Taxpayer’s Declaration on your Tax return for individuals 2020 form (the form used for income tax).

Next, complete question 18 of the Individual tax return instructions supplement 2020 Tax return for individuals (supplementary section) 2020 (NAT 2679).

1. If you made a gain: Report the total amount under the 18H ‘Current year capital gains’ label on your tax return. 
2. If you made a loss: Enter your total capital loss in the 18V ‘NET capital losses carried forward to later income years’ label.
3. This final amount is reported at the 18A ‘NET capital gain’ label

Accounting method used

To calculate capital gains as an investor, you may use either FIFO or LIFO, as long as you can identify each cryptocurrency asset individually.

The ATO requires you to employ FIFO when calculating your crypto income tax as a trader. Trader’s work under business rules rather than capital gains taxes. This implies that your cryptocurrency is considered to be your trading stock, and you must adhere to the regulations for valuing trading stock.

Do I need to keep records? Yes!

The ATO requires you to keep detailed records of cryptocurrency transactions for 5 years after you ‘prepared or obtained the records’, or “completed the transactions or acts those records relate to”, whichever is later.

Remember: You can use an accountant or third-party software to help meet your record-keeping obligations and working out your tax. These records need to be kept for 5 years.

Who can help me calculate my crypto tax?

Tax reporting on cryptocurrencies is relatively new, and most accountants are unfamiliar with it. That does not imply the ATO will be lenient with you. Here are four strategies to successfully complete your crypto taxes. We’ll go through the easiest and most accurate technique first:

1. Create a report on crypto activity using a crypto tax calculator like Crypto Tax Calculator Australia. Send the report to your accountant to complete your taxes. It’s very accurate and simple to use.
2. Create a report of your crypto activity using a tax calculator like ours. Fill in the necessary information on your tax return and submit it yourself. If you understand what you’re doing, this is accurate and simple to do.
3. Make sure your accountant is aware of your crypto usage by providing transaction records, statements, and so on. Allow them to work it out and submit the paperwork for you. Not very precise; there’s a lot of administrative work involved.
4. Work out your activity yourself, and file yourself. (Best of luck to you.)

Capital Gains Tax examples

The most common form of tax for cryptocurrency investors is the Capital Gains Tax (CGT). It’s true in Australia and many other nations, including the United States, United Kingdom, and Canada. According to the ATO, a Capital Gains Tax (CGT) event occurs when you “dispose” of your bitcoin.

In other words, as an investor, if you got rid of your cryptocurrency, whether you sold it, swapped it, donated it or gave it away (or exchanged it for a thing), or traded it for goods (paid with it).

Selling crypto for fiat

Selling cryptocurrency for fiat currency, such as the Australian dollar, is a taxable event, according to the ATO. In the initial year, a 100% Capital Gains Tax will be levied on profit made from the sale of cryptocurrencies. After the first year its 50%.

Trading or exchanging crypto

In Australia, trading one cryptocurrency for another is a taxable event. The ATO considers a trade to be 2 separate transactions: you’re selling one coin for X amount of pretend dollars, and then purchasing another coin with these pretend dollars.

You must pay tax on the sale of a cryptocurrency even if you didn’t receive any money in hand.

The capital gain is calculated using the market value (in AUD) of the purchased assets. If you sold a cryptocurrency that couldn’t be valued, you must consider its market value at the time of the trade.

Gifting crypto to friends & family

In Australia, giving (versus donating) crypto is treated the same as selling it, resulting in a taxable event and CGT payment on the ‘disposal’ of your cryptocurrency. On the date when the gift was given,

Receiving crypto as a gift

If you’re the lucky recipient of a crypto-based present or donation, you won’t have to pay taxes right away. In fact, the event is tax-free because to this. You are taxed when you go on to sell, trade, or give it away.

When calculating any capital gain or loss, apply the market value of the crypto gift on the day you received it.

Trading with stablecoins

A stablecoin, such as AUDT from Australia, is a type of cryptocurrency with price stability. That’s because stablecoins are backed by a reserve asset, generally a solid fiat currency such as AUD. However, the ATO considers stablecoins like AUDT to be no different from any other cryptocurrency – therefore the tax treatment is the same.

When it comes to taxes, there is no significant difference between trading in fiat and trading with a stablecoin.

Margin trading

Margin trading with cryptocurrencies entails borrowing money from an exchange to execute your transactions, then reimbursing it later. There’s frequently some interest charged as well.

There is presently no information on how this is taxed, but it’s worth noting that there’s a clear distinction between margin trading and futures trading, so the regulations that apply to futures trading/speculation may not necessarily apply to margin trades.

“On a futures trade you are speculating on the rise/fall of a coin, on a margin trade you are borrowing funds to carry out some trades. Most exchanges have different platforms for both, for ex. Binance allows margin trading on spot markets, whereas you have to trade on a completely different platform if you want to do futures as well “- Binance Futures.

Taking all of this into account, the prudent course is to treat borrowed funds as your own and pay CGT on the loan’s repayment (as this would be considered a disposal).

Participating in an ICO / IEO

ICOs (Initial Coin Offerings) and IEOs (Initial Exchange Offerings) are terms used to describe a situation in which investors may purchase tokens/coins from a yet-to-be-established cryptocurrency/startup. This purchase is frequently made using coins such as Bitcoin or Ethereum.

This is a crypto-to-crypto trade from the ATO’s perspective. When you acquire new tokens as part of an ICO/IEO, the taxable event is triggered on the date of the transaction. The cost base of that transaction will be the value of the cryptocurrency you paid for it on the day of the ICO/IEO.

Forks / chain-splits

Depending on what occurred to the original blockchain, forking forks are taxed differently. Depending on the kind of fork, you may be charged if one blockchain splits into two (or more) based on the split. The original chain generally continues to operate normally in most cases. There is no cost basis for the freshly forked asset; nevertheless, you will still pay CGT when you dispose of it. There is no effect on the initial or primary asset, and there is no regular income because of this.

If the old chain breaks down, new assets have a zero basis. CGT is triggered if you sell the new ones. When you dispose of the new ones, CGT applies. The original chain is valued at a full loss in capital. No regular income is taken into account.

Paying for goods and services not intended for personal use and/or priced over AUD$10,000 and/or paid with long-held crypto

The Personal Use Asset rule can apply to crypto but under very strict conditions.

If you sell crypto to purchase personal items worth less than $10,000, it is CGT-free. When the disposal involves crypto, the capital gains tax will be applied when:

1. The item value is over AUD $10,000, or

2. Goods are bought for business use, or as an investment, (so not for personal use)

3. Cryptocurrencies are frequently used to purchase goods. Purchases are made with crypto that has been held for a long period of time or was purchased as an investment. The longer you keep a cryptocurrency, the less likely it is to be considered a personal use asset, according to the ATO.

Mining as a hobby

Hobby miners are cryptocurrency mining enthusiasts who participate in the activity as a pastime rather than for commercial gain. Their mining technology investment will be minor – perhaps just a small scale operation at home – and they intend to collect the coins instead of selling them immediately to earn money.

This is not a cash flow opportunity, but rather a capital acquisition.

In order to determine whether you are mining crypto as a business, check out this section of ATO’s website.

Tax Free examples

Not every aspect of crypto trading is taxed, as it may surprise you. You may not have to pay any taxes in some situations. Tax-free crypto events include purchasing cryptocurrencies, token and coin exchanges, and transferring cryptocurrency between wallets that you own. Using cryptocurrencies to ‘purchase’ items for personal use is sometimes tax free. Here’s a breakdown of the most common crypto scenarios where no tax applies:

Paying for personal stuff less than AUD $10,000

Personal use assets, such as clothing, are not taxed in Australia when owned for personal usage. Personal use assets do not incur a capital gains tax burden. So, what is the status of crypto purchases paid for with this personal use asset exemption?

Ordinarily, when you pay with crypto, this is seen as a ‘disposal’ – and that equals capital gains tax. However, capital gains tax may not apply to goods paid for in crypto when:

1. The item bought is for personal use (not for business, nor as an investment.) Eg. Clothes, airline tickets, sporting equipment.

2. The cryptocurrency used to pay is acquired and used within a short period of time

3. The item bought is priced under AUD $10,000.

Buying cryptocurrency

There are no taxes on cryptocurrencies in Australia, much like there are none in most parts of the world. Crypto is also GST free in Australia.

However, keeping accurate documentation of your purchases is critical so that you may compute the cost basis of the transaction when you want to sell or ‘dispose’ of your crypto; this is when you will have to pay tax.

Buy and HOLD

Even if the value of your portfolio rises, you don’t have to pay tax on your crypto holdings if your plan is to simply acquire and store them. The taxable event occurs when you sell, trade, or give your crypto.

Transferring crypto between own wallets

Moving crypto between different wallets or accounts is not a taxable event and doesn’t trigger CGT. Having said that, it’s important to keep track of these movements.

Donating crypto

In Australia crypto donations work the same as regular donations – they’re tax deductible if you’re donating to a registered charity.

You can deduct the value of a cryptocurrency (the dollar price of the cryptocurrency at the time it’s given) when you file your taxes.

Income Tax examples

The Australian Tax Office (ATO) taxes interest income, staking income, mining, forging, airdrops (voluntary and involuntary), and hard forks as income.

The gains from cryptocurrency trading, rather than investment, will be taxed under income tax and not capital gains tax.

The fair market value of the coins you received is taxable, e.g. If your employer gave you a bonus of 0.05 BTC worth $300, you will have to pay income tax on the entire $300. If you sell this Bitcoin for $400, you will be required to pay an additional capital gains tax on the $100 profit. Here’s a summary of the most frequent crypto situations, including when income tax applies.:

Getting paid in Bitcoins

You can’t avoid income tax if you’re freelancing or working for a firm that pays employees in crypto.

If you are unsure about what this means, think of any profits you have received as income. Any coins that have been paid to you as compensation are taxed at market value when you receive them, so be sure to include it on your yearly tax return or you risk being hit with the taxman.

Signup & Referral bonuses

Any cryptocurrency you get in return for signing up or referring people to a service is considered income. The notion of commission is similar to referral bonuses.

Buying and selling crypto as a business

If you are a trader who sells or exchange cryptocurrencies in the normal course of your business, the trading stock rules apply, rather than CGT rules. This implies that the crypto you purchase and sell is treated as equity – i.e. stock take.

The profit made from the sale of cryptocurrency held as trading stock in a corporation is taxable income. The cost of obtaining crypto held as trading stock is deductible as a business deduction.

Examples of businesses that involve cryptocurrency include cryptocurrency trading businesses, cryptocurrency mining businesses, cryptocurrency exchange businesses (including ATMs).

Mining Crypto as a business

A commercial miner is someone who runs a large-scale business. If you’ve spent a lot of money on hardware and have set up operations in a special location such as a data center, you’re engaged in mining. You may also be involved in the trade of mined coins rather than accumulating them for the purpose of selling them later for a profit.

You must report any profits from a mining pool/service or your own mining rig as ordinary income on your Income Tax return.

You will be liable to capital gains tax when you eventually sell the mined coins, even if you have declared them as Income.

In order to determine whether you are mining crypto as a business, or at a hobby-level, check out this section of ATO’s website.

Airdrops

According to the Australian Taxation Office, any air drops you receive from a preexisting token are considered ordinary income at the fair market value of the tokens on the date you acquire them. Airdrops are similar to cash bonuses.

“The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived.”

This applies to both participant and involuntary airdrops.

Airdrops may generate two separate tax events. The first is that the value of the airdropped coins or tokens is treated as taxable income at the time of the airdrop. So, if you’re given $400 worth of cryptocurrencies in an airdrop, you must report it as taxable income.

Second, if you sell, trade, or give away your airdropped tokens, it’s treated as a normal capital gains event. The cost basis is the value of the tokens when they were initially airdropped to you. This implies that if you subsequently sell those coins for $600, you must report a capital gain of $200.

Interest from DeFi / Lending / Staking / Masternodes

The interest earned on your cryptocurrency is taxable income. This is comparable to mining coins and subject to the same regulations. It must be recorded on your Income tax return as additional ordinary income.

Staking rewards are like dividends.

DeFi interest is like bank account interest.

Futures / contracts / options trading with crypto

In futures trading, you are not buying or selling cryptocurrencies. Instead, you’re betting on the price of a cryptocurrency future increasing or declining. You will either make a profit or suffer a loss (P&L) when the future arrives.

There is no guidance from the ATO on how this P&L should be taxed but it will either be CGT or Income Tax

As an investor, will I pay capital gains tax if I’ve already paid Income Tax? Yes!

If you’ve made money from cryptocurrency as an investor (not a business), and then trade your newly acquired bitcoin, there are two tax situations to consider. The first is income tax on the coins you received. Then capital gains tax will be paid when you sell the coins or ‘dispose’ of them, whether it’s a profit or loss.

TIP: If you dispose of cryptocurrency during the year and net a capital gain, you might want to consider disposing of any other assets you own that are sitting at a loss. This way the capital loss can be offset against the capital gain. If you lose your coins, they are stolen or you are otherwise subject to fraud, you may be able to claim the value of your losses as a capital loss.

Lost, hacked or stolen crypto

You may be able to deduct a Capital Loss if your private key is lost or your cryptocurrency is stolen. To claim a Capital Loss, the ATO will require you to provide evidence such as:

• The wallet address that the key belongs to
• When you acquired the key and when you lost it
• The cost of acquiring the stolen/lost cryptocurrency
• The fact that the wallet was controlled by you
• The amount of cryptocurrency at the time that you lost the key
• That you possess the hardware where the wallet is stored
• The transactions to the wallet from an exchange which is linked to your identity

How do I minimise my Tax Liability?

Deducting Cryptocurrency Losses & Trading Fees

The first step in reducing your tax burden is to identify any losses and expenses that you may offset against your taxable income. To do so, you must first determine whether you will be classified as a person who invests in cryptocurrencies or a cryptocurrency trader.

Crypto trading or cryptocurrency used in business

If you’re operating a crypto company, you can take advantage of certain tax deductions for costs associated with doing business that are directly linked to your taxable income. You must meet the ATO’s non-commercial losses criteria in order to qualify – which implies that you’re running a real business.

If you trade cryptocurrency in the ordinary course of your business, the trading stock rules apply rather than CGT rules. Gains from the sale of cryptocurrency held as trading stock in a firm are considered ordinary income, and purchasing costs for cryptocurrencies kept as trading stock are deductible.

Keep in mind that the crypto you hold at the end of the year is a trading stock, and you must report its value as part of your taxable income. Surprisingly, you have three options for declaring the value of your crypto stock: cost, market price, or replacement value.

Buying crypto only to pay for something else / Personal use asset

If you own crypto as a personal use asset, you may be eligible for an exemption from capital gains tax. If you buy less than AU$10,000 worth of cryptocurrency to directly purchase something else with crypto over a short time period, you are entitled to this exemption.

If the crypto is acquired and kept for a lengthy period before any personal use transactions are made, or if only a small amount of the crypto is utilized to make these transactions, it’s more than likely that the digital currency is a personal use asset. A cryptocurrency is unlikely to be a personal use asset in the following situations:

• When you need to exchange one cryptocurrency for Austrian dollars or some other crypto for personal use, OR
• If you must use a payment gateway or other payment intermediary to acquire the things on your behalf, instead of using crypto directly (as opposed to paying via fiat currency),

The key to determining whether a crypto is personal use property is the time at which it will be disposed. Even if you eventually use the crypto to purchase items for personal consumption, it’s unlikely to be a personal use asset because you may have benefited from an increase in its value during the holding period.

This exception may be difficult to use. If the ATO investigates you, the onus of proof is on you to demonstrate that the cryptocurrency was actually a personal-use asset. Additionally, all capital losses incurred on personal-use assets are not allowed to be compensated via capital gains at any time.

Deducting cryptocurrency mining expenses

The tax treatment of mining activities varies according to whether you pursue them as a business or a pastime; this may be determined by going through the ATO’s help page.

Mining as a business

To locate your net taxable income, you may deduct all expenses related to mining — such as power expenditures – from your earnings. In addition, the cost of capital assets, including both hardware and software, can be depreciated over their useful life. If eligible, you may also be able to apply the $20000 instant asset write off to the cost of the capital assets.

Mining as a hobby

If you’ve been crypto mining as a pastime, the bitcoin you’ve mined is a CGT asset, and you’ll be charged capital gains tax when it’s sold. This implies that no deductions are allowed. It’s also important to remember that personal use asset exemption rules do not apply to capital gains incurred on the sale of mined cryptocurrency.

Keep in mind that the ATO may decide to tax you as a trader, or as an investor depending on your mining activities.