How to Save Tax on Cryptocurrency in Australia

Cryptocurrencies have been available for some years, but they have recently received much attention from the ATO with a significant increase in their prices. Learn the strategies to save tax on cryptocurrency in Australia in this article.

The new-age digital money is not regulated by any government authority and operates independently as a private enterprise. Therefore, the Australian Taxation Office (ATO) considers the use of Bitcoin and other cryptos as barter rather than real money.

And while the ATO still does not view cryptocurrency as ‘money’ or ‘foreign currency, it does consider them an asset when it comes to tax.

How is cryptocurrency taxed in Australia?

The taxation consequences depend on your intention and use of the cryptocurrency. For example, you may hold cryptocurrency as an investment, personal-use asset, or ‘stock in trade.’

Tax on Cryptocurrency in Australia When it is Held as an Investment

You are an investor when you hold crypto for future gains instead of profiting from frequent trades. As an investor, any gain arising at the disposal of crypto is taxed as a capital gain.

Disposal resulting in a capital gain or loss will occur when you:

– sell or gift cryptocurrency; or

– trade or exchange cryptocurrency, including the disposal of one cryptocurrency for another cryptocurrency; or

– convert cryptocurrency to fiat currency (a currency established by government regulation or law), such as Australian dollars, or

– use cryptocurrency to obtain goods or services

If the cryptocurrency received cannot be valued, you can use the market value at the time of the transaction as its price.

Tip: A fifty percent discount may also apply when you hold the crypto for 12 months or more in the right structure. Speak to your accountant to discuss structuring your cryptocurrency investments to minimize the tax on your crypto gains.

Cryptocurrency used in business

ATO considers any income from crypto to be business income when you:

– trade in crypto (with an intention) to make a profit; or

– use crypto as money in your business to accept or make payments.

In such situations, cryptocurrency is trading stock. Even an isolated or ‘one-off’ use of cryptocurrency is taxed as ordinary income if the taxpayer intends to profit.

Therefore, any profit made on cryptocurrency in such cases is taxed as ordinary income, meaning the 50 percent discount on capital gains is not available.

Cryptocurrency as a Personal Use Asset

When you hold a cryptocurrency for making payments for your personal items like clothing and restaurant bills, any gain you make at its disposal is not taxable.

However, the personal use of crypto must be $10,000 or less; otherwise, any profit made on the disposal will be taxed as a capital gain.

The relevant time for determining whether the cryptocurrency is a personal use asset is at the time of its disposal.

However, the personal use benefit does not apply where the cryptocurrency is kept or used mainly for profit-making, as an investment (to be sold or exchanged later when the value has increased), or to facilitate purchases or sales in the course of carrying out business.

Caution:

The use of cryptocurrency for personal use must be specific and for a short period. Holding crypto as a float to purchase personal use products may make you ineligible for the personal use exemption.

For example, if you acquire Bitcoin to pay for tickets to an event to avail better deals for Bitcoin payments, the purchase of Bitcoin will be considered to be for personal use. However, if you hold on to that Bitcoin for a long time before buying that concert ticket, it may no longer be personal use.

The burden of proof will be on the taxpayer, so consult an expert if in doubt.

GST treatment of cryptocurrency

The use of crypto as money to make and receive payments is not generally subject to GST.

However, a transaction can still be subject to GST if the digital currency if you exchange for other money or digital currency, just like buying and selling foreign currencies.

While this might bring the supply or acquisition within the GST system, it could still potentially be an input-taxed financial supply.

What records are needed for cryptocurrency?

It is essential for a taxpayer dealing in cryptocurrency to keep precise records that show:

– the date of the transactions;

– what the transaction was for; and

– the identity of the other party to the transaction; and

– and the value of the cryptocurrency in Australian dollars (obtained from reputable online exchanges).

Some examples of these records are receipts of purchase or transfer of cryptocurrency, exchange documents; legal costs; and digital wallet records and keys.

You need to maintain even if you intend to use crypto for personal use as it will save tax by backing up your intent and use of crypto.

If you want to understand Tax on Cryptocurrency in Australia and your possible options on how to save tax with an expert, call Nitin and the team at 0407 027 593.

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