Yes Indeed, you’ll have to pay taxes when disposing of your crypto gains from buying, selling, transferring, mining, staking, airdropping, gifting or lending crypto. In this guide we’ll provide you with the ins & outs of crypto tax regulations in Australia and strategies for minimizing your crypto taxes. Before we continue, feel free to use our Australian crypto tax calculator for a quick estimation. Additionally, we recommend reading through our crypto tax strategies blog post for tips and tricks.
Cryptocurrency in Australia
The Australian Taxation Office (ATO) has been keeping a close watch on cryptocurrency traders since 2014. March of 2020 left over 350,000 crypto & NFT traders with a tax obligation letter at their doorstep. In short, any Australian citizen who has been buying, selling, transferring, mining, staking, airdropping, gifting or lending cryptocurrencies would probably classify these expenses as income and as such is subjected to tax obligations. Understanding the different taxation methods could make it less confusing, so we have broken it down for you.
What is Capital Gains Tax (CGT)
Most people who hold crypto assets use them for personal investment instead of participating in business-level severe crypto assets trading. Hence, ATO mandates individuals participating in personal investment activities to pay capital gains tax on their profits. Cryptocurrencies are intangible since they are considered digital assets. If the crypto assets have a realizable value, as well as a capability to be owned by anyone, it counts as a “chargeable asset”. As such, that’s the primary basis for imposing capital gains tax on crypto assets.
Are you an investor, or a trader?
In Australia, cryptocurrencies are not considered fiat currencies. Instead, they are treated and taxed like assets. Depending on whether you are categorized as an investor or trader, you are obligated to pay the associated tax rate. As an investor, you are subjected to Capital Gains Tax (CGT) and as a trader – to business tax after disposal of your crypto.
Investors are categorized as making profitable long term cryptocurrency investments using personal income sources. On the other hand, Traders are considered businesses ( including solitary traders) and are expected to undertake activities in a business-like manner, such as keeping accounting records. In this sense, normal business tax practices apply.
How to minimize your crypto taxes?
First things first, a good track record of your gains and losses would help optimize your crypto taxes. There are some successful and proven strategies from the past shown below applicable for Australians. For the record, transferring crypto to yourself between wallets is not taxable.
- Investors are considered HODLers and as such the HODL strategy, applied successfully for more than 12-months, actually decreases your CGT discount tax burden by 50%.
- Investors and traders can both benefit from the tax harvesting strategy, as any crypto gains can offset any capital losses (including non-crypto) you may have, which in turn could decrease your net capital loss or offset capital gains.
- When purchasing items directly with crypto for personal use under $10,000 within a short period of time, tax exemption applies. After $10,000 CGT is applied in its standard.
- The first $18,200 of personal income is tax free.
- Use a crypto tax software such as Accointing
- Getting paid in crypto
- Staking rewards
- Referral bonuses
- DeFi interest
- Mining rewards as a business / trader
- Buying crypto with fiat currency
- HODLing crypto
- Transferring crypto between wallets
- Mining rewards as a hobby
Capital Gain Tax
- Selling crypto
- Crypto trading or swapping cryptocurrencies
- Trading stablecoins
- Sending gifts
- Selling, exchanging or gifting NFTs
- Hard forks or chain splits
- Mining when you sell
Lets dive deeper into each category:
Crypto to Fiat Transactions
One of the most common crypto actions is exchanging Fiat to Crypto and vise versa. This action is considered by the Australian taxation office to be a CGT event and as such tax implications appy. Let’s look at the following example:
Scenario Example 1: disposing of cryptocurrency purchased with fiat currency
John purchased 750 Tether (USDT) for A$1,000. A week later John decided to exchange his 750 Tether for 0.020 Bitcoin (BTC). A month later he decides to dispose of all of his BTC and report his capital gains or loss in his financial year tax return.
John’s receipt is shown as:
- used A$1,000 to purchase 750 USDT
- was charged A$10 for brokerage
John total cost basis is A$1,000 + A$10= A$1,010
His exchange provides a receipt for the purchase of 0.020 BTC for a specific date and price. At the time of the disposal, the value of 0.020 BTC has increased to A$1,200. In order to calculate the capital gain or loss John subtracts A$1,200 – A$1,010. This results in a A$190 capital gain which John files in his tax return.
Crypto to Crypto Transactions
Trading cryptocurrencies between individuals often in the course of investment or capital acquisition is a taxable CGT event. Lets look at the following example:
Scenario Example 2: exchanging a cryptocurrency for another cryptocurrency
John had kept his 0.020 BTC bought at purchase price of A$1,000 and didn’t dispose of it, however decided to exchange all of his 0.020 BTC for 0.28 ETH. At the time of the crypto transaction the current market value of 0.020 BTC was A$1,200. His cryptocurrency exchange charges him A$10 brokerage fee for completing this trade. Two months later, he decided to dispose of all of his ETH to A$.
John’s receipt is shown as:
- used 0.020 BTC to purchase 0.27 ETH
- was charged A$10 brokerage fee
John’s total cost basis is A$1,200 + A$10= A$1,210
His exchange provides a receipt for the disposal of the 0.020 BTC for 0.27 ETH for a specific date and price. John compares his previous receipt where he used A$1000 to purchase 0.020 BTC and compares it with his 0.27 ETH current market price. At the time of disposing of 0.27ETH the price is worth A$1,200. John subtracts A$1,210-A$1,000, resulting in a capital gain of A$210 filed in his tax return.
Cryptocurrency as a Personal Use Asset
Any cryptocurrency which is held for consumption or other personal use is considered to be a ‘personal use asset’. According to the ATO personal use assets up to $10,000 will be exempt from CGT. When considering whether your holdings are a personal use asset, the authorities will evaluate factors such as time between acquisition and use, as well as purpose of holding. As a general rule of thumb, if you hold your cryptocurrencies for any significant amount of time and the value increases, then it is unlikely to be seen as a personal use asset by the ATO.
Scenario Example 3:
John bought 10 BTC 2 years ago. On occasions he purchased some goods online with his Bitcoin. Because the primary purpose for John was to hold Bitcoin (BTC) as an investment, it won’t meet the definition of a personal use asset by the ATO.
Scenario Example 4:
It’s John again, this time he is purchasing movies with cryptocurrencies. Every second night he is paying A$20 to acquire cryptocurrency and directly transact and acquire movies. John disposes his cryptos and isn’t holding them. They are considered personal use asset.
Scenario Example 5:
John watched many movies already and doesn’t want to purchase anymore, however still continued to purchase cryptocurrencies. As John is not purchasing anything, his cryptocurrencies become an investment. Even though John later decides to purchase something with his acquired crypto, it is not regarded as a personal asset anymore, but as an investment.
With our CryptoTaxCalculator software you can determine whether your holdings are indeed regarded as personal use assets.
‘Staking’ and ‘Airdrops’
Staking refers to the process of ‘locking-up’ cryptocurrencies to support operations and security of the blockchain. Doing so individuals earn interest similar to a bank deposit. Usually this is achieved by taking part in staking pools.
Airdrops occur when a cryptocurrency project delivers a small quantity of their coin to individuals by depositing them into their crypto wallets. This is often regarded as a marketing strategy to gain exposure to new coins.
So, any income earned from either Staking or Airdrops will not fall under a Capital Gains Tax event, however be regarded by the ATO as income and taxed accordingly to your income bracket.
Forking and Chain Splits
Whenever two pieces of blockchain have the same history, however take different paths for the future a chain split occurs. Holders of the base coin receive an amount of the new coin. The most popular example is when Bitcoin Cash (BCH) split from Bitcoin (BTC) back in 2017. Whenever this occurs, the new holding is treated as an investment with a cost basis of $0. This means that you do not pay any CGT tax, however when you dispose it, you calculate the capital gain and tax accordingly.
Yield Income from Stablecoins
Stablecoins are cryptocurrencies which are pegged to the value of an underlying asset such as Tether (USDT) which is fixed to the $USD. The stability of these cryptos are the unique selling point and preference choice of payment for many employees that seek to be paid in cryptocurrency. So in the case that you are receiving stablecoin as income, income tax will be applied. In addition, you will have to pay CGT after disposing of the stablecoins if you make a capital gain.
Scenario Example 6:
John got a new job and is getting paid 2,000 units of Tether on a monthly basis. The current value for 2,000 units of Tether is A$2,500 and as such he’ll have to pay income tax on that amount according to his income tax bracket. However John decides to use 1,000 of Tether worth A$1,250 and buy 0.021 Bitcoin. After a couple of months, the value of the cryptocurrency Bitcoin increases and the 0.021 Bitcoins are now worth A$1,500. Now John has to pay CGT on the capital gain from this transaction.
Capital Gain= A$1,500- A$1,250 = A$250
Transferring Cryptocurrency Between Wallets
Transferring cryptocurrency between wallets you own will not trigger a taxable event, however track records should be maintained as proof.
DeFi Crypto taxes
The Blockchain DeFi Space is constantly evolving offering new opportunities for investors. As DeFi is pretty new, the ATO has been lagging behind in identifying specific tax requirements. At the basic level the tax is calculated whether you’re ‘earning’ crypto or ‘disposing’ of crypto. To remember, anytime you’re receiving new coins or tokens it’s considered ‘earning’ and when you’re swapping, selling or spending tokens on DeFi platforms it’s considered ‘disposing’.
We have identified the following tax treatment breakdown for you.
- Earning interest from DeFi protocols
- Staking on DeFi protocols
- Yield farming DeFi protocols
- Earning liquidity tokens from DeFi protocols: (depends whether your earning new coins or increasing value of an asset)
- Earning through play/engage to earn DeFi protocols
Capital Gains Tax
- Selling or swapping NFTs
- Profits from DeFi margin trading and options protocols
- Adding or removing liquidity from liquidity pools
Initial Coin Offering
Initial Coin Offerings (ICO) are events where new crypto coins are released into the market for the first time, comparable to the trading stock world of Initial Public Offerings (IPO’s) of shares. ICOs are a popular way to raise funds for products and services related to cryptocurrencies. Despite being a source for yielding massive returns for investors, investors have to be cautious as ICOs for the most part are completely unregulated and risky. Regarding taxes, as a standard rule CGT will not be applicable until the coin has been disposed of.
Cryptocurrency “Collectables” – NFTs
NFTs are scarce digital assets built on the blockchain, mainly using the Ethereum (ETH) also named Ether ecosystem. They are unique and non-fungible (one of a kind) and are stored in traditional cryptocurrency wallets. These crypto collectables often represent animated objects or creatures, such as Crypto Punks and Bored Ape Yacht Club. The Australian Taxation Office has not implemented any specific tax rules in regards to NFTs and as such fall under standard cryptocurrency CGT rules.
Lost or Stolen Cryptocurrency
Whether you have lost your crypto or got it stolen, capital loss may be possible to show to the ATO. The authorities would require documents and information to prove the ownership as evidence. Some of the evidence required include:
- date when you acquired and lost the private key
- the wallet address of the private key
- the amount of crypto at the time of loss or theft
- transactions linking your identity to your wallet
- transactions from a digital currency exchange used to verify your account with your wallet
How to report your cryptocurrency taxes?
Every crypto user has to declare their annual crypto activity to the ATO in terms of income and capital gains just like you need to record keeping your regular income, gains and losses.
How to use Accointing crypto tax app?
Time is precious and mistakes are costly when it comes to tax fillings. You easily use Accointing crypto tax reports to generate the required documents. Simply Sign up for a free account and select your base country and currency. Accointing offers over 300+ wallet and exchanges connection integrations to choose from. After setting it up, sit back and relax while the algorithm does its thing. After a few moments later, the full tax report is generated and ready to be downloaded after upgrading to our paid plan. This report will make your fillings with the ATO a walk in the park.
Please note that as an investor you can either use FIFO, HIFO or LIFO to calculate capital gains and as a trader LIFO is not accepted. Accointing uses FIFO as a default, however this can be changed within the settings.
How to declare your CGT with myTax?
Just lodge your tax return through MyTax available through your MyGov account. To start, link your ATO profile to myGov, after which select Tax from myTax dashboard. Select this year’s returns and after entering your personal information in Step 1 & 2, at Step 3 you can choose to include crypto capital gains in your tax return by selecting this option: ‘You had Australian interest, or other Australian income or losses from investments or property’. From its drop down options, select: Capital gains or losses that are not from a managed fund.
At Step 4, don’t forget to select the deductions box, as you have other income not listed above. In this section you can also include other tax deductions such as your Accointing Plan. From the capital gains summary, which you can get from the first page of your Accointing report, copy the net capital gains and place them under the 18H ‘Current year capital gains’ label on your tax return.
How to declare your crypto with printable forms?
Most people tend to choose the online approach, however the old school method is also possible. You can declare your crypto activity on paper and return the form by mail. Two forms will be required, one for income and the other for capital gains. Tax obligations online or print are necessary.
Your crypto income can be declared on question 2 of Tax return for individuals (https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Tax-return-for-individuals-2021.pdf). Please note that question 2 relates to income other than your standard salary. In the same form, you’ll need to select ‘YES’ if you traded crypto in the past year. Now moving on to question 18 of the Individual tax return instructions supplement (https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Tax-return-for-individuals-(supplement)-2021.pdf).
Under the 18H label whether you have made a capital loss or gain and report the final amount at the 18A ‘Net capital gain’ label. If your total gains or losses exceed $10,000 you should complete Capital gains tax (CGT) schedule (https://www.ato.gov.au/Forms/Capital-gains-tax-(CGT)-schedule-2021/)
What’s the tax burden on your crypto income?
Picture Source: Current resident tax rates 2020–21 per the ATO website.
What’s the tax deadline?
Please note for your tax planning purposes, the Australian tax year runs from July 1 – June 30 the following year. Your tax return for July 1, 2021 – June 30, 2022, needs to be filed by October 31, 2022.
What crypto tax records should I keep and for how long?
For tax purposes make sure that all records, regardless of whether you’re a trader or investor, are stored for five years. The ATO will require you to provide time of the transaction & date, purpose and recipient, as well as the value of the crypto at the time in Australian dollars. These records have to be stored and safeguarded. We’ve got you covered. Accointing helps taxpayers with storing these records, as well as providing all transaction and account statements.
Who can support you with your crypto tax?
Cryptocurrencies and their taxation are fairly new and, as such, could be challenging for many. It doesn’t mean that the ATO will be very understanding when you file your taxes wrongly or not at all. Here are 3 ways to effectively tackle your crypto taxes:
- Use crypto tax software like Accointing to create your neat crypto tax reports compliant with your countries tax regulations to show your taxable income.
- Use a crypto tax calculator like the one available with Accointing to create crypto tax reports which can be added to your tax returns when filing them yourself online through myTax.
- Get an accountant to do it for you by supplying your transaction history, statements and crypto to Australian dollars conversions.
This Australia Crypto Guide on our website is general in nature and is not accounting, tax or legal advice. Before acting on this information, take into account your own objectives, financial situation and needs in regards. We would be happy to support you with any additional information you require.