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Kryptoskatt: Your Complete Guide To Australian Cryptocurrency Taxes
By
Pratibha Tiwari
On

Are you Still trying to figure out whether crypto is legal in Australia? Or How crypto transactions are taxed by the ATO? 

If you answered any one or both of these questions with a “yes”, you’re right where you should be. Because figuring it all out on your own can be intimidating for someone who has no idea where to start. So we decided to make things easier for you with this comprehensive crypto tax guide, which covers everything you need to know about crypto taxes in Australia and the rules governing them.

So let’s start with the most basic questions and build up from there.

How are cryptocurrencies taxed in Australia?

The ATO doesn't consider Bitcoin and other cryptocurrencies as a form of currency and instead categorises them as property. Therefore, the disposal of crypto assets attracts capital gains tax in Australia. Note that the ATO categorises bitcoin, altcoins, NFTs, and other crypto assets under the term cryptocurrencies and therefore disposal of any of the following assets for a profit will attract tax liabilities.

However, there might be instances where crypto is viewed as an income by the ATO and is subjected to income tax.

The tax rules differ for traders and investors in Australia, as the traders are generally liable to an income tax while the investors usually owe capital gains tax. The story is quite similar for crypto investors and traders. 

The ATO has issued clear guidelines as to who is considered an investor and who is considered a trader. The guidelines have been explained in a more digestible fashion below if you don’t have the time to go through the entire document.

According to the ATO, a trader is a person or organisation that uses crypto transactions to generate a recurring income in a business-like fashion. Strategic buying and selling of assets through frequent crypto trades, or large-scale mining operations with specialized equipment, classify the individual or entity as a trader, and the resulting income is subjected to income tax.

While someone who invests in crypto assets for their portfolio and holds a long-term perspective or trades casually and mines occasionally just to utilize their spare computing power, is considered an investor by the ATO and any gains incurred by them are subject to a capital gains tax. It’s important to note that investors may attract income tax depending on the nature of transactions and the source of income.

Capital Gains Tax Rate

The gains you’ve made by buying, selling, spending, or gifting your assets will be taxed based on your total income in a tax year. Here are the tax slabs divided by income groups:

The above rates do not include the medicare levy of 2%.

Crypto Losses

Regardless of whether you’re a trader or investor, losses are inevitable. However, they can be helpful in the context of taxes. You can write off any capital losses you’ve made during a tax year against your gains and claim a tax deduction with the ATO, given that you actively track and record all your losses.

Once you report all your losses to the ATO, you can claim deductions on your tax bill. You can even carry your losses forward to the subsequent tax year if you’ve made a loss during a tax year. 

It's important to keep accurate records of all your cryptocurrency transactions, including the date of the transaction, the cost of the cryptocurrency, and any other relevant information. This information will be needed when calculating your capital gains and losses for tax purposes.

Lost or Stolen Crypto

If you have incurred a loss as a result of a theft or other event that has resulted in the loss of your cryptocurrency, you may be able to claim a capital loss for tax purposes.

To claim a capital loss for theft or loss of cryptocurrency, you will need to provide evidence to the ATO that the cryptocurrency was lost or stolen. This may include police reports, insurance claims, or other relevant documentation. You will also need to provide information about the cost of the cryptocurrency and the date of the theft or loss.

How to calculate your crypto capital gains and losses?

Determining your capital gains or losses is a simple task of subtracting the cost basis (what you paid to acquire the asset) from its value at the time of disposal. If the result is positive (selling for more than what you paid), you have a capital gain and the disposal is taxable. Conversely, if it's negative (selling for less), it's a capital loss, allowing you to offset gains and lower your taxable income.

To calculate your cost basis, simply add the price you paid for the asset while acquiring it with the transaction fees or gas fees incurred at the time of acquisition and then convert it to AUD. However, it might be an intimidating task for you when you consider the overwhelming number of transactions accumulated over an entire year. Lucky for you Kryptoskatt can auto-fetch all your transactions from across your investment profiles and digital wallets and calculate the cost basis for you within seconds.

Crypto Tax Breaks Australia

You might be aware that it’s impossible to legally avoid paying taxes entirely on your crypto transactions unless you’ve made a net loss during a tax year. However, there are strategies apart from writing off the capital losses that you can use to lower your tax bill. Here are some of them:

Disposal of Long-Term Assets

Any crypto assets held for over a year are eligible for a tax relief of 50% on capital gains(33.33% for insurance companies and eligible super funds). So if you have assets in your portfolio that you’ve held for over a year, you can sell them and pay 50% fewer taxes on them.

For instance, if you bought 2 Eth tokens back in 2018 for 1,271 AUD and later sold that in 2021 for 3,921 AUD. The total gains of 5,300 AUD will only be considered to be 2,650 AUD and will be taxed accordingly.

Assets for Personal Use

According to the ATO, capital gains resulting from personal use assets are not taxed. Cryptocurrency is considered a personal use asset if it is primarily used to buy items for personal consumption. However, if the primary purpose is an investment, generating profits, or conducting business, then cryptocurrency is not considered a personal use asset.

Unclear guidelines surrounding the classification of crypto assets as personal use assets can be a challenge. However, by following best practices, you can increase the chances of successfully demonstrating the personal use nature of your transactions to the ATO.

  • Segregate personal use crypto assets and investment assets into two wallets
  • Don’t hold personal use assets for long durations
  • Record all your transactions from the personal use wallet
  • Use tokens directly to make purchases, never swap them for fiat currency
  • Buy goods or services for personal consumption directly from the seller without the use of a payment gateway or other intermediary service for bill payment.

Crypto Gains Tax Australia

As mentioned above, the ATO considers crypto to be a capital asset and therefore the disposal of these assets attracts a capital gains tax. Transactions listed below are considered disposals by the ATO:

  1. Selling crypto for fiat currency(AUD or any other)
  2. Swapping one crypto token for another
  3. Buying goods or services with a crypto asset
  4. Gifting crypto

It’s important to note that there are two sub-categories of capital gains taxes in Australia. If you hold your assets for more than a year before disposing of them, then you’re liable for a 50% discount on the capital gains you’ve made, while if you hold assets for less than a year before disposing of them, then you’re taxed at a higher tax rate called the short-term capital gains tax.

Crypto Cost Basis Methods Australia

The ATO has specified that for the average investor, any crypto accounting method from among FIFO, HIFO, and LIFO can be utilized, provided that each tax lot can be accurately identified. On the other hand, if you are classified as a trader, someone who engages in crypto trades as a business, then you must only use FIFO for capital gains calculation.

Can the ATO track crypto transactions?

Yes, the ATO can track cryptocurrency transactions. The ATO has access to various sources of information, such as data from cryptocurrency exchanges and blockchain analytics tools, to identify individuals who have conducted significant cryptocurrency transactions. The ATO may use this information to ensure individuals are correctly reporting their cryptocurrency gains and losses on their tax returns.

What Crypto records will the ATO want?

Ideally, you should maintain the following records to avoid complications when filing your taxes with the ATO:

  • A record of all purchases, sales and income earned during the tax year across all your investment profiles, and digital wallets.
  • A record of P&L and capital gains or losses made in a tax year.
  • A record of all transfers made between your wallets.

Crypto Income Tax Australia

If you’re making an income from crypto assets, you’re liable to an income tax. Now there are various ways you can earn crypto as an income:

  • Staking or mining rewards
  • Strategically trading crypto assets
  • Through lending activities on De-Fi platforms
  • Creating your own NFTs and selling them
  • Validating on-chain transactions and collecting rewards for them
  • Earning through Play-2-Earn, Learn-2-Earn, Watch-2-Earn Web3 platforms like Brave, Coinbase Learning, Odyssey, and Axie Infinity
  • Receiving airdrops 
  • Receiving referral rewards
  • Receiving crypto as payments in exchange for a product or a service

Tax-Free Crypto Transactions

In Australia, the following crypto transactions are tax-free:

  • A personal use asset transactions, such as buying cryptocurrency to hold as a personal investment, are exempt from capital gains tax if the cost is less than AUD 10,000.
  • Transferring cryptocurrency between personal wallets.
  • Trading cryptocurrency for other cryptocurrencies, as long as the transaction is not part of a profit-making scheme.
  • Purchasing goods and services for personal use with cryptocurrencies 

Taxed Transactions

In Australia, cryptocurrency transactions are subject to tax laws and are considered taxable events. Some common crypto transactions that are taxable include:

  • Trading or exchanging cryptocurrencies for fiat currency (e.g. AUD) or other cryptocurrencies.
  • Receiving cryptocurrency as income, such as payment for goods or services.
  • Purchasing goods or services with crypto assets(for non-personal use)
  • Disposing of cryptocurrencies, such as selling or exchanging them for fiat currency or other cryptocurrencies.
  • Mining cryptocurrency, as the reward received is considered income.
  • Staking or holding cryptocurrency to receive rewards, as the rewards are considered income.

How to Report Crypto Taxes in Australia

With your reconciled cryptocurrency calculations in hand, you have two options for filing your taxes in Australia. You can choose the traditional method of filling out a paper tax form and mailing it to the ATO or you can opt for the convenient and secure online option through myTax. This online service, associated with the ATO, offers a fast and easy way to prepare and file your tax return, helping you receive your refund sooner.

Tax on Mining Crypto Australia

Mining crypto is not taxable if pursued as a hobbyist, however, you might owe taxes to the ATO if you are involved in mining activities as a business.

Mining as a Hobby

If you're mining cryptocurrency as a hobby, there is no need to report the income you receive from your mined coins right away. You'll only be required to pay taxes when you eventually sell those coins. Unlike those who mine cryptocurrency as a business, hobbyist miners don't have the benefit of deducting expenses such as equipment costs, monthly fees, and electricity bills from their taxable income.

Mining as a Business

If your mining activity classifies as a business venture, it's mandatory to report the fair value of the received tokens as soon as you receive them. All the figures to be reported must be in AUD, and you are entitled to claim tax deductions for expenses associated with the mining operation, such as equipment, electricity, and so on.

Crypto Margin Trading, Futures, and CFDs

Crypto margin trading, futures, and CFDs are taxed as income in Australia. The value of the asset at the time of the transaction is the taxable amount. The amount is converted to Australian Dollars for tax reporting purposes. If the trading activity is considered to be a business, then the individual is eligible to deduct related business expenses, such as trading software, internet costs, and so on.

If the trading activity is considered to be a personal investment, then the individual can only claim a capital loss if the value of the cryptocurrency decreases and can be offset against capital gains from other investments. It is advisable to seek professional tax advice to determine the tax implications of crypto margin trading, futures, and CFDs.

NFT Taxes Australia

In Australia, Non-Fungible Tokens (NFTs) are considered taxable property by the ATO, and the sale or transfer of NFTs is subject to capital gains tax (CGT) rules. If an individual acquires an NFT for personal use, the sale of the NFT will be a taxable capital gain if the sale price exceeds the cost base of the NFT. If an individual acquires an NFT for resale, the sale of the NFT will be considered a taxable supply and may be subject to goods and services tax (GST).

De-Fi Crypto Taxes Australia

The ATO has yet to issue specific guidelines for DeFi taxation, but that doesn't exempt DeFi activities from being taxed. Investors must take the existing guidance, which can be interpreted with the assistance of a tax professional, and apply it to their DeFi transactions. Be it Capital Gains Tax at the normal Income Tax Rate with a 50% reduction for long-term gains when selling, swapping or using cryptocurrency, or Income Tax calculated based on the fair market value of the coins or tokens received, DeFi activities will be subject to taxation.

How are Airdrops and Forks Taxed in Australia?

Airdrops

According to the updated ATO guidelines on airdrop taxation, any tokens received as a result of airdrops are considered to be ordinary income for tax purposes and are subjected to income tax.

However, there is a notable exception to this rule that pertains to the initial allocation of airdrops. The ATO states that these airdrops are not viewed as ordinary income upon receipt and thus are exempt from taxation. The cost basis for these tokens is either what was paid for them or, if nothing was paid, it's zero.

Forks

Since soft forks don’t result in additional tokens for existing users, there are no taxes involved with them. However, hard forks are a different story. There are two categories you need to consider if you’ve been a part of a hard fork. If you operate as a business, the new tokens received from the hard fork will be added to your trading income and will attract an income tax. You owe zero taxes otherwise. The newly received tokens will inherit a cost basis of 0 NZD so that you pay a capital gains tax on their entire value at the time of disposal.

Frequently Asked Questions(FAQs)

  1. Can the ATO track crypto transactions?

Yes, the ATO can track cryptocurrency transactions to some extent. The ATO has access to a range of information and data sources, including cryptocurrency exchange data, to help it identify individuals who may not have properly declared their cryptocurrency transactions for tax purposes.

In recent years, the ATO has been taking an increasingly active approach to enforcing tax obligations related to cryptocurrency transactions. This includes using data matching to identify individuals who have not declared cryptocurrency gains or who have underreported their taxable income.

  1. Do I have to pay GST on both NFT and digital currency transactions?

According to a notification published by the ATO on July 1, 2017, the purchase and sale of digital currencies are not to be subjected to GST. Which effectively means that you cannot charge GST on the sale of digital currencies and you’re not entitled to GST when you purchase digital assets.

While, if you are engaged in conducting a business that involves digital currency, or incorporating it as a part of your existing business, or accepting digital currency as a form of payment for your business transactions, it is important to carefully evaluate and take into account any possible GST implications that may arise.

As NFTs are not considered a form of digital currency. The GST treatment of an NFT depends on whether your transaction meets the requirements of being either a taxable or GST-free supply

  1. How are airdrops and forks taxed in Australia?

In Australia, airdropped and forked cryptocurrencies are considered taxable income and must be reported on an individual's tax return. The value of the airdropped or forked cryptocurrency on the date it was received is considered its cost to calculate capital gains tax when it is later sold. If the cryptocurrency is held for 12 months or more, it may be eligible for the capital gains tax discount. Additionally, suppose the airdrop or fork is part of a profit-making scheme or carried out in the course of carrying on a business. In that case, the value of the airdropped or forked cryptocurrency may be subject to ordinary income tax.

  1. What happens when I move crypto between wallets, exchanges and pools?

As long as you’re moving assets between wallets or exchanges that you own, the event is not considered a taxable event. However, the transaction fees paid to move the assets are considered disposal of assets and are subjected to a capital gains tax in Australia.

Similarly, funds moved from one liquidity pool to another follow the same rule. It’s a non-taxable event in the eyes of ATO. 

However, note that it’s essential to keep track of all these transactions to accurately calculate the cost basis for all your assets and that may be an intimidating task for many as their investments are spread across wallets, exchanges, and De-Fi protocols.

A smart step would be to use an online crypto tax calculator like Kryptoskatt, which can easily track all your transactions from across your trading and investment profile and even creates legally compliant tax reports seamlessly with a click of a button. All you need to do is to add all your wallets and investment profiles on the website and let the software do the job for you.

  1. What if I can't afford my crypto tax bill?

If you cannot afford to pay your crypto tax bill in Australia, you have several options:

  • You can contact the Australian Taxation Office (ATO) and request to set up a payment plan to pay off the tax debt over a longer period.
  • You can request an extension of time to pay the tax debt.
  • If you are experiencing financial hardship, you can apply to have your tax debt remitted (cancelled) or varied (rearranged).
  • You may consider seeking assistance from a tax professional or financial advisor to help you manage your tax debt.

It's important to take action as soon as possible and not ignore the tax debt, as this may result in additional fees and interest charges.

  1. Is there a legal way to avoid taxes in Australia?

No, there is no legal way to avoid paying taxes in Australia. It is a legal obligation to accurately report all taxable income, including profits from cryptocurrency transactions, and pay the appropriate amount of tax. Failing to report income and pay the required taxes accurately can result in significant fines and penalties, as well as potential criminal charges. It's essential to comply with all tax laws and regulations in Australia and seek professional advice if necessary.

      7. Is cryptocurrency legal in Australia?

Yes, crypto is legal in Australia and is considered a capital asset(property) instead of a currency by the ATO(Australian Taxation Office) and taxed accordingly.

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