What is the ATO's classification of cryptocurrency?

  • 3rd April 2025
  • 4 min read
crypto tax calculator australia news graphic

Cryptocurrency has become a prominent financial asset in Australia, with millions of Australians engaging in trading, investing, and decentralised finance (DeFi) activities. However, as the popularity of digital currencies like Bitcoin and Ethereum grows, so does the need to understand how they are classified and taxed by the Australian Taxation Office (ATO). This article explores the ATO’s classification of cryptocurrency and its implications for Australian taxpayers.

Cryptocurrency as Property, Not Money

The ATO does not recognise cryptocurrency as money or foreign currency. Instead, it classifies cryptocurrency as property and treats it as a Capital Gains Tax (CGT) asset. This classification applies to all forms of cryptocurrency, including coins, tokens, stablecoins, and non-fungible tokens (NFTs).

For tax purposes, cryptocurrencies are considered digital assets that use cryptography to secure transactions and distributed ledger technology (blockchain) to record them. The ATO defines crypto assets as operating independently of central authorities like banks or governments. Despite their decentralised nature, transactions involving cryptocurrencies are subject to the same tax rules as other types of property.

Key Tax Implications

The classification of cryptocurrency as property has significant tax implications for Australians. These include;

Capital Gains Tax (CGT)

  • What triggers CGT? Any event where you “dispose” of cryptocurrency can trigger CGT. Disposal includes selling crypto for fiat currency (e.g., AUD), trading one cryptocurrency for another, gifting crypto, or using it to purchase goods and services.
  • How is CGT calculated? To calculate your capital gain or loss, you must determine the market value of the cryptocurrency in Australian dollars at the time of both acquisition and disposal. The difference between these values determines your taxable gain or loss.
  • CGT Discount: If you hold your cryptocurrency for more than 12 months before disposing of it, you may be eligible for a 50% discount on your capital gains.

Income Tax

In some cases, cryptocurrency transactions are treated as income rather than capital gains:

  • Earning Crypto: If you earn cryptocurrency through activities like staking, mining, or airdrops, the market value of the crypto at the time it is received is considered assessable income.

  • DeFi Activities: Earnings from decentralised finance (DeFi) platforms—such as interest from lending or liquidity pool rewards—are also treated as income.

Investor vs Trader: A Crucial Distinction

The ATO categorises individuals dealing with cryptocurrency into two primary groups: investors and traders. Your classification significantly impacts how your crypto dealings are taxed.

Investor

Most Australians fall into this category. Investors buy and hold cryptocurrency as a personal investment with the intention of earning long-term returns. For investors:

  • Gains are subject to CGT.

  • Losses can be used to offset other capital gains.

  • The 50% CGT discount applies if assets are held for more than 12 months

Trader

Traders operate a business involving cryptocurrency. This could include frequent buying and selling for short-term profits or running a crypto exchange. For traders:

  • Profits are taxed as ordinary income under business rules.

  • Losses can be deducted against other income.

  • The 50% CGT discount is not available.

The distinction between an investor and a trader depends on factors such as transaction volume, business plans, profit motives, and whether activities are conducted in a business-like manner.

Special Cases: DeFi and Wrapped Tokens

Decentralised Finance (DeFi)

The ATO has provided specific guidance on DeFi activities:

  • Lending or participating in liquidity pools is treated as a crypto-to-crypto transaction and may trigger CGT.

  • Rewards earned from DeFi platforms are taxed as income based on their market value when received.

Wrapped Tokens

Converting cryptocurrency into wrapped tokens (e.g., wrapping Bitcoin into Wrapped Bitcoin) is considered a CGT event. The market value of the wrapped token at the time of conversion is used to calculate any gain or loss. This classification has sparked debate due to the underlying asset remaining unchanged.

Record-Keeping Requirements

The ATO mandates that taxpayers maintain detailed records of all cryptocurrency transactions for at least five years after completing them. Records should include;

  • Dates of transactions

  • Market value in AUD at the time of acquisition and disposal

  • Purpose of each transaction

  • Details of associated wallets and bank accounts

Using tax-compliant software or consulting an accountant specialising in cryptocurrency can help ensure compliance with these requirements.

How the ATO Tracks Cryptocurrency

Contrary to popular belief, cryptocurrency transactions are not anonymous. The ATO has extensive data-matching programs with Australian cryptocurrency exchanges and designated service providers (DSPs). These programs allow the ATO to access:

  • Personal details such as names, addresses, and dates of birth

  • Transaction data including wallet addresses and linked bank accounts

  • Historical data dating back to 2014

ince 2020, the ATO has intensified its focus on ensuring tax compliance among crypto investors. Many Australians have received letters reminding them to declare their crypto activities accurately.

Tax-Free Transactions

Not all cryptocurrency activities are taxable. Examples of tax-free events include;

  • Transferring crypto between your own wallets

  • Holding crypto without disposing of it

  • Receiving crypto as a gift (though disposing of gifted crypto is taxable)

Key Takeaways

Understanding how the ATO classifies and taxes cryptocurrency is essential for avoiding penalties and ensuring compliance. Here’s a summary:

  1. Cryptocurrency is classified as property and taxed under CGT rules.

  2. Income Tax applies to earnings from staking, mining, DeFi rewards, etc.

  3. Accurate record-keeping is crucial for calculating gains/losses.

  4. The distinction between investor and trader determines how your activities are taxed.

  5. The ATO actively monitors crypto transactions through data-matching programs.

By staying informed about these regulations and seeking professional advice when needed, Australian taxpayers can navigate the complexities of crypto taxation effectively.

This guide provides an overview tailored for Australian consumers engaging in cryptocurrency activities. Always consult with a tax professional for advice specific to your circumstances.