Under Australian tax law, cryptocurrency investments are generally classed as property, so therefore they come under capital gains tax rules.
But this isn’t always the case.
Here’s a quick guide to help you understand how to pay tax on crypto in Australia
Looking to start your cryptocurrency journey? Make sure you plan your tax strategy with one of our advisors.
How to pay tax on crypto in Australia
When it comes to paying taxes, there are three different situations you might find yourself in.
- You’re holding cryptocurrency for personal use
- You’re using cryptocurrency as an investment asset
- You trade cryptocurrency full-time
So depending on how you utilise your cryptocurrency will determine how you pay tax on it.
How to pay crypto taxes for personal use
You might be one of the people who purchases and holds cryptocurrency purely for the sake of using it to make purchases—as actual currency. If you use it this way, and it’s clear you don’t own cryptocurrency to make a profit, then this is considered personal use.
In this circumstance, you may not be required to pay any tax on your crypto gains, limited to a cost of $10K. However, it doesn't matter if you sell your cryptocurrency for more than this limit.
We recommend checking with your financial adviser first to confirm that this is the case.
How to pay crypto taxes when investing
When you purchase cryptocurrency as a means of investing, your cryptocurrency doesn’t earn you any tangible value. It’s only on disposal of your cryptocurrency that your tax obligations kick in. In this instance, you’re required to pay tax on any capital gain you make.
Under capital gains tax rules, you can determine your taxable crypto income by subtracting the original price you paid for your crypto from the amount it was disposed for. So if you make big gains on your crypto sale, you may be lumped with a big CGT payment.
However, if you hold your crypto asset for 12 months or longer, you may also be entitled to a 50% discount on the taxable amount.
How to pay crypto taxes as a crypto trader
If you buy, hold, and sell cryptocurrency as your sole income—essentially, if it looks like investing crypto is your business—then you may be considered a crypto trader for tax purposes.
In this circumstance, if buying and selling cryptocurrency is how your business makes profit, then your cryptocurrency gains are considered as part of your assessable income. They’re then taxed as part of your regular assessable income.
This also means you’re allowed to claim deductions on expenses generated through trading cryptocurrency.
How to actually lodge crypto tax
Lodging your crypto tax is easy. Your accountant can undertake the process for you, or alternatively, simply use your MyTax application through the MyGov portal.
When lodging your annual tax return, all you need to do is declare your crypto income in the capital gains tax section of your online form.
For crypto trading, simply count it as your annual assessable income.
But throughout the process, there are some steps you can take which will make it much, much easier.
Keep records of your cryptocurrency dealings
This should go without saying, but the first step in staying on the right side of the ATO is to keep records for all cryptocurrency transactions. Even if you’ve undertaken transactions in different countries (in which situations you’ll need to abide by their local tax laws).
So keeping clear and accurate records is important. This can be done as simply as creating a spreadsheet and noting all the necessary details, or you can get specialised software to do this for you. Make sure that you’ve got digital copies that are easy to access.
Here’s what you need to include as part of your record.
When buying and selling crypto, make sure you keep:
- A record or receipt of the transaction
- Any documentation that displays the date and time of the purchase, the type of coin, the purchase price in AUD, and the nature of the transaction
- Records demonstrating any commission, brokerage fees, or legal costs
- Exchange records
As the holder of cryptocurrency, you must keep:
- A record of your digital wallet and any keys
- Any documentation that shows the date and quantity of cryptocurrency received either by air drop or staking. A crypto airdrop occurs when a cryptocurrency sends free coins to its users. Staking is a process where you commit your cryptocurrency asset to the underlying blockchain network, where it’s used to confirm transactions. This allows you to earn a small percentage in exchange for your stake, enabling a passive income.
Report any cryptocurrency disposal
When you dispose of your crypto, whether it’s at a gain or a loss, you must report it. To report it, simply keep a record of the receipt of sale or transfer of your cryptocurrency.
This can include situations like:
- When you decide it’s time to convert your crypto into cash
- You might trade one type of cryptocurrency for a different coin
- Any time you trade, sell, or gift your crypto to another user
- Any transaction fees charged to you at this point are counted as part of your cryptocurrency disposal, and are included in your CGT obligations
Simply transferring your cryptocurrency from one wallet to another isn’t considered a disposal. You’re still the owner of it so there’s no need to report this action.
The final word
As cryptocurrency becomes more mainstream, the ATO is putting data-matching measures in place to gain a more accurate picture of the crypto landscape. This means that trying to obfuscate your crypto gains is a bad idea.
When it comes to paying crypto taxes in Australia, be sure to approach it with the same mindset as any other property investment.
So be sensible about it: record and report any and all crypto dealings. But be prepared to manage CGT events.
To stay on track, it’s best to work with a team of financial specialists who can take the headache out of it for you.