Beginner’s Guide To Cryptocurrency Tax In Australia

If you’ve been trading cryptocurrencies, you may have to report it on your tax return. Working out your cryptocurrency tax can be complicated, and there are a lot of different factors you need to consider when preparing your tax return. To help you out, we have developed a quick guide to break down everything you need to know about cryptocurrency and tax in Australia.

 

What are cryptocurrencies? 

Simply put, cryptocurrency is a new form of digital money that operates on blockchain technology. They don’t physically exist. Like regular cash, digital currencies are accepted as a means of payment and can be used to purchase goods and services online. Bitcoin is the most popular cryptocurrency, but there are many others out there.

 

How they work

The Australian Tax Office (ATO) classifies cryptocurrency as an asset; therefore, you will need to assess your Capital Gains Tax every time you trade, sell or give away your cryptocurrency. Cryptocurrencies are subject to Capital Gains Tax (CGT) and income tax, however, exempt from the Goods and Services Tax (GST).

Capital gains are the tax you pay when you make a profit on a transaction. For example, if you buy a Bitcoin for $3,000 and sell it six months later for $5,000 then you’ve made a capital gain of $2,000 and will need to pay tax on that amount.

On the other hand, when cryptocurrency service providers send free coins to users (also known as airdrops), this can trigger income tax. The value of those coins must be declared as ordinary income.

 

How does the ATO figure out how much crypto tax I owe? 

In late 2019, the ATO started collecting records from Australian cryptocurrency service providers to ensure people were tax compliant. Each time you make a transaction, there is an electronic record that is reported to the ATO from your service provider. That’s why it’s more important than ever to know what you’re doing and report your income correctly.

 

Am I an Investor or Trader?

The first thing you need to do is to determine whether you’re classified as an investor or trader by the ATO.

An investor is someone who buys and sells cryptocurrency for long-term personal gain. The majority of people who engage in cryptocurrency are considered to be investors, therefore their transactions are subject to Capital Gains Tax.

On the other hand, a trader is someone who carries on a business to earn income from buying and selling cryptocurrency. Rather than putting a value on capital gains, they treat their profits as business income instead. For traders, different Income Tax rules apply compared to Investor CGT Events.

 

To give you a better understanding, in each scenario below, we determine the type of tax liability that applies.

Buying Cryptocurrency – There are no taxes involved when you buy cryptocurrency in Australian Dollars.

Selling Cryptocurrency – Selling cryptocurrency will trigger Capital Gains Tax. Capital gains or loss can be calculated by subtracting the amount you paid for a cryptocurrency from the amount you sold it for. This figure forms part of your income and needs to be declared on your tax return.

Trading Crypto for Crypto – Buying one cryptocurrency with another will trigger Capital Gains Tax. The ATO sees a trade as two separate transactions, first, you are selling your cryptocurrency for X amount, then buying another with those earnings. So, even though you never receive the money in hand, you still need to pay tax on the sale.

Gifting Cryptocurrency – Gifting crypto is considered the same as selling it, so it is a taxable event and subject to the Capital Gains Tax. You don’t have to pay taxes when you receive cryptocurrency as a gift. However, you will be subject to the Capital Gains Tax when you dispose of the gifted cryptocurrency.

 

What records do I need to keep?

Whether you’re an investor or a trader you need to keep clear records, including the following information:

  • The value of the transaction
  • The date the transaction was completed
  • The purpose of the transaction
  • The details of the other party involved

Examples of useful records to keep include:

  • Receipts of your cryptocurrency purchase
  • Records of agent, accountant, and legal costs
  • Exchange records
  • Digital wallet records
  • Software costs associated with the management of your tax affairs

 

Where do I keep these records? 

There are a number of different cryptocurrencies tracking software available in the marketplace that can help you keep track of all your transactions. (CoinTracker is one example of no doubt many – however, please be aware we are not recommending this product. You should conduct your own research and investigations before deciding on a specific product).

If you need assistance with your tax return or need more information about how cryptocurrencies may affect your taxes, please contact The Hrkac Accounting Team on 03 5224 2366.

Liability limited by a scheme approved under Professional Standards Legislation.

It’s that time of year again, and although it’s been a bumpy 2020 so far, your tax appointment doesn’t need to be stressful. If you’re prepared with the right paperwork, receipts, and statement information, you are on track for a hassle-free appointment with the Hrkac Group Accounting team.

Our Accounting team has prepared some handy checklists for both Personal and Business tax return appointments. You can use these as a guide for what you might need to bring with you/have them handy for your appointment this year.

 

Personal Tax Return Checklist

Top items to bring:

  • A copy of last year’s Tax Return
  • PAYG/Group Certificates
  • Receipts for claims/deductions
  • Self-Education costs
  • Private Health Insurance Annual Taxation Statement

Download the full checklist here:

Working from home?

If you have been working from home over the past few months, you may be able to claim work-related expenses on your tax return.

For more information on what you can and can’t claim, visit the ATO website:

Working from Home Information.

Business Tax Return Checklist

Top items to bring:

  • Back up or invite your Hrkac Accounting specialists to your accounting program
  • Capital purchase documentation
  • Payroll records

Not all items on these checklists may apply to your return and you don’t have to bring these to your appointment, but they can be handy to keep on file for next year. If you are unsure about any of the items on the checklist, bring as much information as you can to your appointment, and we can help you know what is relevant to your tax return.

Book online

The Hrkac Group is ready to take your Tax Return appointments for 2020, whether it be in person, over the phone or via video call – the choice is yours.

You can make your appointment online with John, James, Shane or Linda by clicking the button below.

When you arrive for your appointment, please take the time to read our COVID-19 policy notice at the entrance, before entering. We ask if you are feeling unwell, to please reschedule your in person appointment to a later date or contact our office to change your appointment to a Zoom/Phone appointment.

Liability limited by a scheme approved under Professional Standards Legislation.