Anyone who buys, sells, or invests in cryptocurrency must know of their tax obligations.
Although cryptocurrency is essentially virtual currency, it is still recognised as an asset by the ATO. Therefore, it will be taxed accordingly.
Investing in cryptocurrency may seem daunting, especially when you’re unsure how tax will impact your wealth management plans. However, seeking financial assistance from a team of professionals may be the help you need.
Hence, the team at One Accountancy have outlined a simplified guide on how cryptocurrency is taxed in Australia – making it easier for you to form the appropriate financial decisions.
Read on to find out everything you need to know about tax and cryptocurrency in Australia.
Investor or Trader?
To understand your tax obligations, you must first figure out whether you are a crypto investor or trader.
Investor:
Most Australians will fall under the investor category when it comes to cryptocurrency. This includes using crypto for long-term gain and as a personal investment. As an investor, your gains and losses on crypto are subject to Capital Gains Tax (CGT).
Trader:
Traders are businesses that have operations involving cryptocurrency. To be classified as a trader, you should be:
- Carrying out activity for commercial reasons
- Pursuing activities in a business-like manner
- Securing the preparation of accounting records
Capital Gains Tax (CGT)
The ATO identifies cryptocurrency as a CGT asset. Therefore, you are required to assess your capital gains every time you trade, sell, or gift your crypto. In any disposal event where you make a profit, you will need to pay tax on the capital gain you’ve made.
The CGT Discount
If you hold onto your cryptocurrency for longer than 12 months in hopes of long-term gain, then you are eligible for the 50% CGT discount. This is an ideal discount for taxpayers as it reduces the amount of tax you will pay on your crypto assets.
Capital Losses
A capital loss refers to when your crypto asset is worth less than what you originally bought it for. Fortunately, you can use a capital loss to offset any capital gain – meaning you won’t be paying more tax than necessary.
Keeping Crypto Records for Tax Reasons
Whether you’re an investor or a trader, keeping thorough records of your transactions is necessary when it comes to lodging your taxes.
Record keeping can include:
- Dates of any transactions
- How much your cryptocurrency is worth at the time of the transaction (value must be in AUD)
- Whoever was involved in the transaction
You can complete these records in various forms, including receipts, exchange records, and more.
Getting Taxed on Cryptocurrency Income
You may be wondering exactly how much you’ll be getting taxed when generating income from cryptocurrency.
The answer is simple. Whether you’re earning wealth through crypto or regular currency, you’ll be taxed depending on your marginal income tax bracket and the money you generate annually.
Hence, the more you make in terms of financial gain with crypto, the more you will be taxed. However, there are strategies you can implement to keep your taxes low. Talk to our experts at One Accountancy for tips on reducing taxes.
Disclaimer: Any advice on this site is general nature only and has not been tailored to your personal objectives, financial situation and needs. Please seek personal advice prior to acting on this information. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs. Content in partnership with Taxpayers Australia.
