Crypto Tax Guide Australia 2021

In Australia, cryptocurrency transactions are liable to both Capital Gains and Income Taxes. The Australian Tax Office (ATO) has created clear guidelines on how crypto is taxed in Australia. In this article, we will break down the crypto tax situation in Australia.

Table of Contents

  1. Tax Treatment of Cryptocurrencies
  2. Investor or Trader
  3. Capital Gains Tax (CGT)
  4. Capital Gains Tax Rate
  5. Calculating your Capital Gains
  6. Income Tax
  7. Types of Transcations
  8. Classifications

1. Tax Treatment of Cryptocurrencies

The ATO estimates that roughly 600,000 Australian taxpayers are liable for crypto taxes. With growing adoption across the country, the Australian Taxation Office (ATO) is concerned that taxpayers believe their cryptocurrency gains are tax-free or only taxable when the holdings are cashed back into Australian dollars.

According to Assistant Commissioner Tim Loh:

“This year, we will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previsouly lodged returns. We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax returns to report their cryptocurrency capital gains or losses.”

Interestingly, the ATO does not view cryptocurrencies as money. Instead, it is viewed as a ‘property‘, subject to a capital gains tax (CGT)

When a capital gain or loss is made from cryptocurrency, the market value of the cryptocurrency in Australian Dollars at the time of disposal is used to calculate it. 

2. Investor or Trader

Before we begin our tax guide, one distinction that is key when filing and reporting taxes in Australia is between traders and investors.

Investor: An investor is an individual who passively buys and sells crypto on a personal basis with the goal of gradually increasing their wealth over an extended period of time. The majority of crypto holders in Australia are considered investors and will be subject to a CGT. In some instances, an Income Tax may also apply.

Trader: A trader is an individual who actively engages in buying and selling crypto to generate wealth and operates from a business setup. If you’re running a crypto trading, forging, or mining business, regularly buying and selling for short-term gains, or running a crypto exchange, the ATO would tax you as a trader. Profit is taxed as ordinary income.

Note:

If you hold an asset for longer than 12-months, it may be eligible to apply the 50% CGT discount. This is a 50% discount for individual taxpayers and 1/3% (i.e. 33.33333%) for compliant super funds.

3. Capital Gains Tax (CGT)

According to the ATO, you are liable to a CGT when you dispose of your cryptocurrency. A disposal can occur when:

CGT:

– Sell or gift cryptocurrencies
– Trade or exchange cryptocurrencies (including the disposal of one crypto for another crypto)
– Convert cryptocurrency to fiat currency (e.g. the Australian Dollar)
– Use cryptocurrrencies to obtain goods and or services

Interestingly, if the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.

In essence, the CGT is simply the difference between the AUD value of the cryptocurrency at the time you dispose of it minus the AUD value of the cryptocurrency at the time it was acquired. The ATO strongly recommends that you keep records of every capital gain event for up to 5 years prior to the event!

4. Capital Gains Tax Rate

If you’re buying crypto as an individual (investor), the percentage you’ll pay on CGT is the same as your income tax rate. Your income tax rate depends on your total income during the tax year.

ATO Individual Tax Rates

5. Calculating Your Capital Gains Tax

Calculating your CG is pretty straightforward, especially with a tool like ACCOINTING.com.

Here is an example:

  1. John buys 100 BTC for $10,000 on the 1st of May 2020.
  2. He then sells 80 BTC on the 10th of May, now valued at $12,000
  3. John can claim a deduction of $10,000 for the initial purchase of 100 BTC.
  4. Next, he can also declare the $12,000 he made selling 80 BTC as income.
  5. Finally, John must also adhere to trading stock regulation to determine if there is any income or deduction due to the chance in value of BTC.

Using ACCOINTING.com’s capital gains tax report service the amount John must pay in taxes are:

Australian Tax Report from ACCOINTING.com

6. Income Tax

Traders and businesses that operate within the crypto space are primarily liable to an ordinary income tax for all the gains derived from their dealings.

An income tax is applicable for any of the following:

Ordinary Income Tax:

1. Getting paid in crypto
2. AIrdrops
3. Sign-ups and referral bonuses
4. Interest from Defi
5. Rewards received from staking

In essence, if you receive crypto’s as a payment for a good or service, mining and staking, you will be subject to an ordinary income tax.

Important: When receiving cryptocurrencies, the current market value of the crypto on the day is used to determine the amount liable to tax.

Positive note: It is worth declaring your cryptocurrencies as ordinary income since you may be able to make deductions.

If you’re declaring cryptocurrency as ordinary income, you may also have related deductions.

Business expenses you purchase with cryptocurrency throughout the financial year, including the cost of acquiring cryptocurrency itself, can be deducted from your annual tax return in the same way as if they were paid for with fiat currency.

There are cases where crypto is treated as income and is liable to an Income Tax, especially if the ATO views you as a trader, versus an investor. As an Investor, you’re less likely to earn income from crypto in Australia, but here are a few possibilities:

Tax Free (the following activities are tax-free in Australia)

– Buying crypto
– Holding crypto
– Token and coin swaps
– Acquiring crypto as a gift
– Transfers between your own wallets
– Donating to registered charities
– Buying goods and services (under A$10,000 if it’s a personal use asset)

7. Types of Transactions

Here are some of the transactions you may come across when buying and selling crypto:

a. Cryptocurrency as an investment

If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency.

Note:

You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.

If you have a net capital loss, you can use it to reduce a capital gain you make in a later year. You may not deduct net capital from any form of income you receive.

You can use ACCOINTING.com to record each cryptocurrency transaction to work out whether you have made a capital gain or loss from each CGT event.

Example:

Sarah has purchased a number of different cryptocurrencies.
If Sarah decides to sell some of her crypto’s, the proceeds would be subject to CGT because she has acquired and held her cryptocurrency as an investment.

b. Staking rewards and airdrops

Proof of Stake is a type of consensus mechanism that requires stakers to hold units of a given crypto so that transactions can be validated on the network.

If you stake, you may be awarded additional tokens when new blocks have been created on the network. The additional tokens are awarded for holding the original token.

Note:

The value of those additional awarded tokens is classified as ordinary income by the ATO.

Other consensus mechanisms that reward existing token holders for their role in maintaining the network will have the same tax outcomes. If you participate in ‘proxy staking’ or who vote for tokens in delegated consensus mechanisms, and receive a reward by doing so, derive ordinary income equal to the money value of the tokens they receive.

Some projects ‘airdrop’ new tokens to existing token holders as a way of increasing the supply of tokens.

Note:

The money value of an established token received through an airdrop is classified as ordinary income of the recipient at the time it is derived.

Example (staking):

Tom holds 50,000 AAVE tokens, which she stakes to an AAVE pool as a premium staker. Tom receives additional AAVE tokens when his pool participates in consensus, including a small payment of tokens from the node leader for supporting their node.

The money value of the additional AAVE tokens Tom receives is assessable income at the time the tokens are derived. The cost base of the AAVE tokens will be their market value at the time they were derive

Example (airdrop):

Julie bought UNI tokens in February 2019, entitling her to receive a monthly UNI airdrops from February 2019.

The money value of the UNI tokens Julie receives for holding UNI tokens is assessable income at the time the tokens are derived. The cost base of the airdropped tokens will be their market value at the time they were derived.

c. Crypto as a personal use asset

A cryptocurrency is considered a personal use asset if used to purchase items for personal use or consumption.

Cryptocurrency is not a personal use asset if it is kept or used mainly:

– As an investment
– In a profit-making scheme
– In the course of carrying on a business

When you purchase cryptocurrency within a short period of time for the purpose of personal use or consumption, the cryptocurrency is more likely to be a personal use asset.

However, where the cryptocurrency is acquired and held for some time before any such transactions are made it is less likely that the cryptocurrency is a personal use asset.

The cryptocurrency will not be a personal use asset:

– When you have to exchange your crypto into Australian dollars.
– If you have to use a payment gateway to purchase items on your behalf

The relevant time for working out if an asset is a personal use asset is at the time of its disposal.

During a period of ownership, the way that cryptocurrency is kept or used may change. The longer a cryptocurrency is held, the less likely it is that it will be a personal use asset.

Note:

Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded.

Example:

Doris wants to attend a concert. The concert provider offers discounted ticket prices for payments made in cryptocurrency. Doris pays $300 to acquire cryptocurrency and uses the cryptocurrency to pay for the tickets on the same day.

Under the circumstances in which Doris acquired and used the cryptocurrency, the cryptocurrency is a personal use asset.

8. Classifications

Incoming transactions / deposit:

Classification type (incoming transaction)Taxable or not taxable?Definition of Cost basis
No classificationTaxable incomeCost basis: Market value on the sell date
Buy trade (incoming side)Not taxableCost basis: Market value on the sell date
OTC trade (incoming side)Not taxableCost basis: Market value on the sell date
ICO trade (incoming side)Not taxableCost basis: Market value on the sell date
Hardfork Not taxable Cost basis: Market value on the sell date
Airdrop Not taxable Cost basis: Market value on the sell date
Mining (as a hobby)* Not taxable Cost basis: Market value on the sell date
Bounty Taxable income Cost basis: Market value on the sell date
Masternode incomeTaxable income Cost basis: Market value on the sell date
Staking IncomeTaxable income Cost basis: Market value on the sell date
Received giftNot taxable Cost basis: Market value on the sell date
Swap (DEX) (Incoming)Not taxableCost basis: Value of the receiving date.(if there is an amount on the sell side, you can select it as OTC and use the proceeds from the sell side)
Income from gambling Not taxable Cost basis: Market value on the sell date
Add fundsNot taxable Cost basis: Market value on the sell date
Income (for a service)Taxable income Cost basis: Market value on the sell date
Liquidity pool incomeTaxable income Cost basis: Market value on the sell date
ReconcileTaxable income Cost basis: Market value on the sell date
Lending IncomeTaxable income Cost basis: Market value on the sell date
Margin gainTaxable margin trade income (separate table in the report) Cost basis: Market value on the sell date
Definition of the taxable or not taxable event created by deposit classifications

*if you do mining as a business you can offset costs (electricity, etc.) from the mining income. If you receive tokens from mining and are not trading, the tokens will be treated as other taxable income.

Withdraws or sell actions create disposals

Classification type (outgoing transaction)Taxable or not taxable?Definition of Cost basisSummed up in
No classificationTaxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
Sell tradeTaxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
OTC trade (sell side)Taxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
ICO trade (sell side)Taxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
Swap (sell side)Taxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
Payment (outgoing transfer to someone else)Taxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
Used for gamblingTaxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
Gift sent*Taxable Disposal Cost basis: Market value on the sell date Non taxable disposal in full tax report
Lost**Not taxable disposal Cost basis: Market value on the sell date Non taxable disposal in full tax report
Remove fundsNot taxable disposal Cost basis: Market value on the sell date Non taxable disposal in full tax report
ReconcileTaxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
FeeTaxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
Interest paidTaxable Disposal Cost basis: Market value on the sell date Taxable disposal as capital gains in full tax report
Margin lossNo disposal tax, but proceeds summed up in margin tableProceeds: Value at the dateNon taxable disposal in Full tax report and taxable loss in Margin table
Margin feeNo disposal tax, but proceeds summed up in margin tableProceeds: Value at the dateNon taxable disposal in Full tax report and taxable loss in Margin table
Definition of the taxable or not taxable event created by withdraw classifications

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