Are you a crypto trader or investor from Australia? Has the subject of crypto tax bothered you? Well, this guide is going to cover it all. Right from capital gains tax to tax you need to pay on crypto gifts and lending and staking, everything you need to know we’ll take you through it all. And it’s going to be broken down into really simple concepts for you to understand.
Crypto gains and losses are subject to Capital Gains Tax in Australia. The income is considered with the Income Tax Return and tax is paid on the net overall gains.
Wait, what? Capital gains tax and income tax?
Well, in Australia even though crypto gains are considered Capital Gains Tax, there is no separate tax slab called Capital Gains Tax. The gains are eventually subject to Income Tax and you need to pay tax on the net overall gains observed.
All registered crypto exchanges need to register with the AUSTRAC as financial service providers. In such situations, the Australian government can track your crypto data. The Australian Tax Office, ATO is responsible for the tax collection of all taxpayers of the country.
When traders and investors sign up on an Australian crypto exchange, they need to fill out a Know Your Customer, KYC form. This information is shared by the exchange or wallet with the government.
The Australian government views crypto tokens and assets not under the realm of money but instead under the asset head of property. You need to classify your crypto transactions from crypto coins, tokens, NFTs, gifting, and donations, under income from a property.
But this is not a blanket situation for all crypto transactions. Some specific transactions may be viewed as additional income and may be taxed under special circumstances. More on this later.
The income tax rate depends on the total income you’ve made in that financial year inclusive of all gains, capital, and income gains:
As a trader or investor in Australia, you need to calculate the Capital Gains Tax on your crypto transactions the same way you would for any other regular asset.
A capital gain is observed when you sell an asset for more than you have bought it for. Subsequently, a capital loss occurs when you sell an asset for less than what you bought it for.
But to know your capital gain or loss you first need to know how to calculate your cost basis. Cost Basis is the cost you paid in AUD to acquire the crypto asset. Very similar to the buy price of a regular asset.
Once you know the cost basis for your crypto asset, subtract that from the sale price of the crypto.
Cost Basis = Cost of Acquisition for Crypto Asset + Fees Paid
As an investor, you can use FIFO, HIFO, or LIFO to calculate your Capital Gains Tax. But traders MUST use FIFO. This is according to ATO. Since traders come under business tax and not capital gains, the crypto assets are considered trading stock, and those rules need to be followed.
We just covered how to identify as a crypto trader or investor in the section above. Don’t worry, we’ve got you covered always :)
Alya bought 1 ETH in February 2022 for AUD $1000 and a transaction fee of AUD $100. In the month of June 2022, Alya sold the ETH for AUD $2200 inclusive of the transaction fee.
Cost Basis = Cost of Acquisition + Fee
= AUD $1000 + AUD $100
= AUD $1100
Sell Price = AUD $2200
Capital Gains = Value at Disposal - Cost Basis
= AUD $2200 - AUD $1100
= AUD $1100 [inclusive of all fees]
Alya will now be taxed according to her Income Tax category that she falls under.
If Alya waited for 12 months and more she’d only have to pay 50% of AUD $1100 because of the long-term Capital Gains Tax discount.
If you disposed of your crypto asset for a price lower than the cost basis you will incur a loss. ATO lets taxpayers in Australia carry forward the losses to future years to set it off against other gains. There is also no limit on how many years you can carry forward the capital losses.
The losses can also be offset against other regular investments such as stocks and property. But they cannot be set off against ‘other income’.
A wash sale is when taxpayers increase their losses elsewhere to reduce their overall tax liability. ATO has informed its taxpayers to not indulge in such activities of deliberately creating artificial losses to gain a tax benefit.
So be on the lookout. Don’t engage in activities to save a few dollars to pay long-term repercussions!
Whenever you dispose of any cryptocurrency, a taxable event is created according to the ATO. Dispose of does not just mean sell transactions. Some other situations of disposing of crypto transactions could be:
1. Selling crypto in exchange for AUD or another fiat currency
When you sell any crypto asset ATO looks at the event as disposing of crypto assets. Disposal of any crypto asset leads to a tax event. You can dispose of a crypto asset in exchange for AUD or another fiat currency and it will lead to a taxable event.
2. Selling crypto in exchange for another crypto, stablecoin, or NFT
When you sell crypto for another crypto, you are essentially selling one crypto to buy another one. ATO views this transaction as disposing of an asset and hence it is a taxable event. In such situations, you need to pay tax to the equivalent of the crypto asset you disposed of.
If the cryptocurrency that you received can't be valued, you will have to take into account the market value of the crypto you sold at the time of the transaction.
The same situation works for stablecoins such as AUDT as they are just another form of cryptocurrency asset.
Ben buys 1 ETH in exchange for 0.5 BTC. Since he is selling BTC he is required to pay tax on the dollar value of BTC if he has made a profit on it.
At the time of selling BTC, the price was AUD 20,000. When Ben acquired the BTC he paid AUD 15,000. Since the selling price is more than the cost basis, Ben is required to pay tax on the transaction.
3. Paying for goods and services in exchange for crypto
Just like disposing of a crypto asset in exchange for AUD or fiat, when you pay for goods and services in crypto, the transaction is seen as disposing of crypto assets. Which leads to a taxable event. There is one exception to this, which is paying for goods and services in exchange for crypto under Personal Use Asset. We’ve covered that in the latter part of the guide, so ensure you check it out ;)
4. Gifting crypto to another individual
Generally, gifts and donations are considered to be tax efficient. But the same does not work for crypto gifts and donations.
This is where the bad news starts. Whether you’re gifting crypto to your friends or family or to make a profit, ATO views the transactions at the same level and will ask all taxpayers to pay Capital Gains Tax on any profits received from the transaction.
This is because ATO views the transaction as disposing of the coin and hence will be taxed.
If you hold crypto for at least one year before the crypto asset has been disposed of, all Australian taxpayers are eligible for a 50% discount on capital gains. In short, the ATO wants to boost the long-term holding of crypto assets.
5. Disposal of tokens received in Airdrops
Once you sell the airdrops, the event is treated as a normal capital gains tax event by subtracting the market value of the coin from the selling price.
Bret receives a token via airdrop worth AUD $1000 on 1st Jan 2022. The fair market value of the coin is AUD $1000.
6 months later Bret sells the coin for AUD $1500.
AUD $1500 - AUD $1000
Bret will report AUD $500 as capital gains on his Individual Tax Return Form.
6. Transfer fee for transferring crypto from one wallet to another
Transferring crypto assets from one wallet to another is not a taxable event. However, most transfers include a transfer fee. If this transfer fee is paid in AUD there is no taxable event. However, if the transfer fee is paid in crypto assets ATO views this as the disposal of a crypto asset. This event is subject to tax. So while transfers are tax-free, the transfer fee in crypto is taxable.
As an investor or trader, you need to calculate the cost basis of the crypto asset and then subtract that from the selling price to know the profit or loss. If it's a profit, you will need to pay Capital Gains Tax on it.
Even if you identify as an individual investor there are some use cases where your crypto can be treated as income and will thus be subject to Income Tax directly and not Capital Gains tax.
When you earn crypto in the form of a ‘labor’ perspective, it is considered Income Tax.
Some of the instances under which earning crypto is considered as income is:
Some platforms offer ‘engage-to-earn’- that pay out crypto for activities in return. These include transactions such as:
Receiving crypto in any form whether it's a source of income or freelancing, you’re subject to Income Tax.
The tax is calculated at market value on the day you receive the crypto at AUD. It is important to know the source of income for your crypto assets and ensure you tax them accurately.
If you dispose of crypto assets worth AUD 10,000 and less for buying items for personal use, they are not subject to tax and are Capital Gains Tax-Free. But the disposal of crypto assets will be taxed in the following events:
Pam bought crypto assets at the start of January 2022 with the purpose of some short-term capital gains. In August 2022, she found a good deal where she could buy a phone against the crypto assets she had. Since Pam used the crypto asset as an investment initially, the disposal of the crypto asset is not considered a personal use asset.
According to the ATO, receiving Airdrops is considered as any ordinary income at the fair market value of the token on the day of receiving the asset.
Taxpayers in Australia need to figure out the tax that needs to be paid on these airdrops by figuring the fair market value on the day of receiving the airdrop and applying the income tax rate slab they fall under.
Emma received 1 ETH in an airdrop on 1st Jan 2021. The cost basis is AUD $0.
After 13 months Emma sold the coin for AUD $2000. Because the cost basis is zero Emma is required to pay tax on the entire sum. But since she held it for more than 12 months she needs to pay tax only on 50% of the sum.
1. Crypto Mining
If you’re a crypto miner in Australia and doing it as a hobby, according to the ATO the rewarded coins are considered a capital acquisition. In such a situation, when you receive the crypto tokens, they’re tax-free.
However, at the time of disposal, the mined coins will be subject to capital gains tax at disposal. It's also important to remember that personal use asset exemption rules don't apply to the capital gains made on the disposal of mined cryptocurrency.
2. Receiving crypto tokens via Forks
If you’re an investor, you won't pay Income Tax on any new coins received as a result of a hard fork. According to the ATO, the cost basis for new coins from a hard fork is zero.
Once an investor decides to sell the token received in a hard fork, taxes will be paid on the profit. Since the cost basis for the coin is zero, taxes will be paid on the entire value of the coin as that is seen as the entire profit.
The way Australian taxpayers can work around the taxation of hard forks is by holding the token for more than 12 months. This is then categorized as long-term and hence the taxpayers will receive a 50% discount on capital gains tax.
3. Buying crypto assets with AUD
When you purchase cryptocurrency with AUD in Australia, you are not taxed. At the same time, no GST fees are levied.
But, as an investor and taxpayer, it is very important to keep a record of all these purchases to calculate the cost basis when you decide to sell off or dispose of the crypto assets.
4. Receiving crypto as a gift
Lucky for everyone who receives crypto as a gift. They do not need to pay tax on receiving crypto as a gift.
But yes, once you sell the crypto, you need to pay tax on the profit received from the transaction. Even if you re-gift it to someone else, it will be a taxable event. So always keep a record of your crypto transactions whether you buy them yourself, receive them as a gift, or gift crypto to someone else.
ATO requires you to be on top of your transactions.
5. Donating Crypto (Only DGR)
There’s good news here! ATO considers crypto donations in the same category as regular donations - they’re tax deductible if you’re donating to a deductible gift recipient (DGR).
As a taxpayer you can claim the donated amount as a deduction on your total tax return and any associated capital gains is exempt.
6. Moving crypto between wallets and exchanges
If you’re moving your crypto assets between your own wallets and exchanges, the transfer is tax-free and does not create a taxable event. The ATO does not view this transaction as disposal of an event and hence no Capital Gains tax is required to be paid.
But it is still important to keep a track of all these transactions. Not only is this better for taxable events when you dispose of the assets in the future but it also helps in creating your tax reports when using Binocs.
There is one instance you need to keep track of. When transferring assets from one wallet to another, you need to pay transfer fees. The ATO views this transaction as disposing of an asset.
While this can be a tedious task to do, once you sign up on Binocs your transactions and tax will be calculated easily.
The ATO has given Australian taxpayers some tax relief by offering tax breaks that can apply to crypto transactions too. Some of them are
1. Tax-Free Threshold
All Australian taxpayers will only start paying tax once their income crosses the total of AUD $18,200 in that financial tax year.
2. Long-term capital gains tax discount
If you hold an asset for over 12 months, it is considered a long-term capital gain, and taxpayers are entitled to a 50% discount on the overall tax gains.
3. Personal use asset
You can get a tax exemption if you hold crypto assets for personal use. In reality, it is unlikely for an asset to be considered for personal use unless you have held the crypto asset for a short period with the idea to purchase another item. Items purchased for less than AUD $10,000 are considered under Personal Use Asset.
Personal use assets can be complex to understand and get a hang of. But we’ve covered it in-depth for you to understand it easier as you read along with the guide :)
ATO has not laid down specific rules for margin trading and futures. It can get a little complicated but we’ve broken it down for you as much as we can.
Margin trading is when traders borrow funds from an exchange to take an exposure to a high trade using the borrowed funds. At the end of the trade, the margin is paid back with a small percentage of interest.
Since there are no clear guidelines on how margin trading is taxed it is important to note one clear difference between margin trading and trading with futures.
Margin Trade: Carrying out a trade with borrowed funds.
Futures Trade: Carrying out a trade based on speculation on the rise and fall of a token.
Most exchanges in Australia and globally have different exchanges to carry out these transactions. Since it is important from your end to figure out the transactions and their type, it’s important to seek professional advice before you make any tax-related decisions.
Contracts for Difference, CFDs
While ATO has mentioned the tax structure for them - it’s quite convoluted and complicated.
So in short, in most instances CFDs will be subject to Income Tax - wherein all transactions are considered as ordinary incidents of carrying on a business and profit is observed. Most taxpayers trading CFDs are fairly experienced investors as such, profits will be subject to Income Tax and not benefit from the various Capital Gains Tax breaks. Similarly, losses from CFDs are allowable deductions.
There are rare instances where profits from CFDs are non-taxable. This includes when a CFD is entered into for the purpose of recreational gambling - but it's very difficult to meet this bar for the ATO.
Crypto Futures or Options
If you’re trading on crypto futures or options, it is considered speculation on the rise or fall of crypto assets. Traders either make a profit at the end of a trade or a loss.
ATO has not mentioned how this profit or loss needed to be treated in terms of tax. But since you will book a profit only at the end of a trade, it should be considered under Capital Gains Tax.
If anything has seen a craze in crypto space in the last few years, it's been NFTs. ATO considers NFTs as crypto assets just the way other crypto tokens are considered. Thus, all NFTs will be subject to Capital Gains Tax.
The tax treatment of the NFT will depend on your facts and circumstances including whether you are carrying on a business or are an investor.
Artist Selling NFTs
Again, creating and selling NFTs will need to be distinguished as whether the artist is creating it as a hobby or if it's a full-time business.
If it’s a business, it’s like running any other business and since that’s the main source of income it is considered as Income Tax. Again, one should speak to an expert to know the tax implication of their NFT activities.
Selling and Trading NFTs
1. Buying NFT against a crypto token
Capital Gains Tax since any profit made on disposing of the crypto token is subject to Capital Gains Tax
2. Selling NFT against crypto tokens or fiat currency
Capital Gains Tax due to profit made on selling the NFT
3. Swapping one NFT for another
Capital Gains Tax since swapping involves disposing of an asset that is subject to Capital Gains Tax
Since DeFi is a new talk of the town and is still evolving, ATO has not issued any clear guidance on how these transactions will be taxed.
But that does not mean you won’t pay taxes on your DeFi trades. As a trader/investor you will either pay no tax, capital gains tax, or income tax on your de-fi transactions.
Okay, to start off, every time you’re seen earning crypto or disposing of crypto, they will be subject to tax. Many DeFi transactions will be covered under this segment itself.
Before you pay tax on your De-Fi transactions, it’s important you speak to a tax advisor and get the green light since guidelines are a little fuzzy.
The following are potential tax treatments that may apply however we are yet to get confirmation from the ATO.
However, it is still advisable to run your DeFi transactions with your tax consultant before any actions are taken.
Earning from DeFi protocols
Earning from DeFi protocols is taxed under Income Tax based on the fair market value of the assets on the day you receive them.
Selling or Swapping DeFi protocols
Since selling or swapping involves disposing of one protocol to receive another token or asset, the transactions are subject to Capital Gains Tax.
Akin Initial Public Offerings in the equity market, ICO, and IEO are situation to the crypto market. Investors and traders usually purchase new coins in exchange for BTC or ETH.
Since this is swapping one crypto asset for another, ATO views them as crypto-to-crypto trades. The taxable event is created on the date of the ICO transaction. Also, when you sell the new token at a later date, a taxable event is created.
Traders and investors need to keep this in mind while buying new crypto assets and need to know these will be subject to Capital Gains Tax.
Any crypto you get in return for signing up or referring users to a service is taxed as Income. Referral bonuses are similar to the concept of commission. Thus, any signup or referral instances are subject to Capital Gains Tax.
Till now we’ve discussed how all crypto assets are subject to either Capital Gains Tax or Income Tax in Australia. However, there is an exemption for assets that come under Personal Use Asset such as clothes, basic needs, etc.
So how can you include disposing of crypto assets under personal use asset?
In a general scenario, when you’re paying for goods against crypto assets the transaction is considered as a disposal of an asset which is then subject to tax. But in some transactions disposing of crypto assets can be considered under Personal Use Asset:
Let’s go back to the Pam example itself. Now instead of acquiring the crypto asset for investment purposes if Pam acquires the asset with the intention of buying a personal use item, the disposal of the asset is considered tax-free. In this instance, the day Pam acquires the crypto asset she uses it to buy the phone directly. Thus, this transaction is considered a personal use asset and is not subject to Capital Gains Tax.
The hot topic in the crypto market has been DAOs and their growth. DAOs are essentially a community that is controlled by a bunch of members instead of a single authority or leadership. The stake owners of the DAOs have equal decision-making power and say in the community. DAOs let the community members take charge of the future of the organization.
Since DAOs are a new age crypto trend, the ATO has still not laid down tax guidelines for the same. In such a situation it's always advisable to speak to your tax consultant before you take any action.
Before you dive into how to file your crypto taxes in Australia it’s important to know that ATO requires you to keep records of your crypto transactions for 5 years.
ATO also recommends using Australian tax solution compliant software and Binocs fulfills all the requirements you need.
With Binocs you can integrate all your transactions across all platforms and let the software calculate your taxes for you.
What records are required by ATO for crypto taxes?
Documents such as:
How to report your crypto taxes?
Once you figure out your entire transactions under Capital Gains Tax and Income Tax you need to declare your income under Annual Tax Return. Remember, Australia does not have a separate Capital Gains Tax slab; instead all the gains are eventually paid under one tax head called the Income Tax. We’ve covered this at the start of the guide.
The Australian financial tax year is from 1st July to 30th June of the following year. For the financial year, the tax calendar is from 1st July 2021 to 30th June 2022 and the last date to file the tax is 31st October 2022.
If you’re going via an accountant you have till 15th May 2023 via that route.
Who is a Crypto Trader according to the ATO?
If your main source of income is from trading cryptocurrency transactions, according to the ATO you identify as a crypto trader. This includes activities right from crypto trading to mining, derivative trading and even operating a cryptocurrency exchange.
The ATO’s definition of a trader is someone who undertakes “business activities for the purpose of earning income from buying and selling shares”. Since this is your main source of income all your profits are taxed as income and those rules will apply to you.
Who is a Crypto Investor according to the ATO?
According to the ATO, a crypto investor is one that owns crypto assets with the intention of earning a future gain on the asset. Similar or holding stocks for the long term a crypto investor aim to gradually build wealth over time.
The majority of the Australian taxpayers come under this category and your crypto gains will be subject to Capital Gains Tax. In some cases, Income Tax may directly apply (i.e. outside of capital gains) - depending on how the crypto was acquired.
Business and Trader Transaction Tax in Australia
Buy and Sell for a Business
If you’re a business owner and you buy crypto in the course of your business, you’re subject to stock rules tax and not Capital Gains Tax. The profit that you receive from the sale of crypto assets in the course of your business income is considered ordinary income. The cost of acquiring the cryptocurrency can also be deductible as a business tax deduction.
Businesses such as:
Are all considered under the purview of business and trader transaction tax in Australia.
Amy runs a crypto exchange business. On 1st Jan 2022, Amy acquires 10 ETH worth AUD 50,000. On the same day, she sells 5 ETH for AUD 35,000. Since Amy runs a crypto exchange the acquisition and disposal are considered part of ordinary business. Amy can claim a deduction of AUD 50,000 for the acquisition of her crypto assets and then declare AUD 35,000 as the sale of the crypto asset. The difference of AUD 15,000 can be considered as assessable income in exchange for the unsold crypto asset.
Crypto Mining as a Business
If you’re conducting crypto mining on a large scale you’re a commercial miner. Since commercial miners receive coins on a daily basis they will continually sell them for an immediate profit.
Any proceeds you receive from the mining pool/service or your own mining hubs are taxed as ordinary income and will be declared on your Income Tax return.
In case you need to understand whether you’re actions come under crypto mining as a hobby or as a business, check out this section of ATO’s website.
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