Cryptocurrency transactions are taxed in Australia at the general rates of tax, together with all other income. Unless trading as a business, capital gains rules usually apply, which may exclude ‘personal use’ transactions. Isolated transactions not forming part of a business operation, may also be excluded.
What happens to digital currency profits for tax purposes?
Answers to this question depend on why the cryptocurrency was acquired and how it was used.
The 3 ways Cryptocurrency Profits Could Be Taxed
- the profits are fully taxed as business or trading income (e.g. an acquisition made with the intention of speculating that the price will increase, or as part of an established business operation). Traders do not have access to the 50% profit discount (see point 3. below).
- profits are fully taxed under the Capital Gains Tax (“CGT”) rules, the crypto asset having been owned for less than 12 months
- 50% of the profits are taxed under the CGT rule (e.g. owned for more than 12 months). (Note: this is not a tax discount. It is a 50% reduction of the taxable profit).
Cryptocurrency ‘Personal Use’ Tax Exemption
Crypto profits are not taxed if treated as ‘personal use‘ assets under the CGT rules.
Personal use assets acquired for less than $10,000 are disregarded for CGT purposes. Whether the crypto assets are personal use is determined at the time of disposal.
Similarly, small scale hobby mining can be tax free. The mere act of mining crypto is not automatically considered by the Tax Office to be a profit-making venture. When carried out on a small scale it can be simply a hobby.
Tax Office Attitude to Crypto Transactions
Much of the information issued by the Tax Office generally assumes that crypto profits or losses are covered by the CGT rules. Therefore if your circumstances support an alternative view, record keeping is crucial, and professional advice is certainly recommended.
The Tax Office’s data-matching activities provide transaction information which is available to tax return pre-fill reports.
See media release: Crypto Tax – ATO
For more on the practical issues involved, see article: Crypto Tax – (Bantacs)
Cryptocurrency and The Capital Gains Rules
For most individuals, the CGT rules will either apply, or assumed to apply by the ATO, in which case:
- Capital losses can only be used to offset capital gains, and can’t be used to offset other income. Unused capital losses can be carried forward to future years.
- Capital profits or losses are calculated by subtracting the cost base from the sale proceeds at market value. The cost base includes all acquisition and holding costs.
- Disposal for CGT purposes includes a sale or exchange for other forms of currency or goods or services (unless the crypto is a personal use asset).
Cryptocurrency and GST
From 1 July 2017, GST has no application to cryptocurrency. For guidance on transactions prior to 1 July 2017 see GSTR 2014/3W: the GST implications of transactions involving bitcoin.
Keeping track of crypto transactions can be challenging because of the number of alternative arrangments, or possible transaction types.
The Tax Office stresses the importance of keeping records which adequately explain the date, value, purpose and relevant parties to every transaction.
Unless you have few transactions, the use of software to manage the record-keeping and reporting requirements can help to minimise the tax risk of mistakes or oversight.
The donation of cryptocurrency to a Deductible Gift Recipient (DGR) is a disposal of property for CGT purposes.
It is therefore recorded at both the donations and capital gains sections of your tax return, using the market value at the time of the event.
More information here: Donating crypto assets
ATO Data Matching of Crypto Transactions
If you have had dealings in the purchase or disposal of cryptocurrency, it is safe to assume that the Tax Office has access to that information for matching with your annual tax return.
Cryptocurrency transactions can be complex. But it is a common misconception is to assume that if the Tax Office “can’t prove” something happened, it is safe to ignore. If you are thinking along these lines, best talk to your accountant about the risks and consequences.
The tax rules require taxpayers to voluntarily report their income, and to not do so can result in fines or worse when the Tax Office act on information received from other sources.
Regulation of Digital Currencies
Concerns about money-laundering and the deployment of cryptocurrencies in criminal conduct, has led Australian authorities to regulate its use.
A loophole in the definition of currency previously allowed cryptocurrencies to escape the oversight of Austrac which applies to financial services. Regulations are designed to detect material movements of money, look through shields of anonymity and track proceeds of crimes.
The Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 approved by the federal parliament expands (amongst other purposes) the scope of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 to include digital currency exchange providers. The old definition of “e-currency” is replaced with an expanded definition of “digital currency”.
Cryptocurrency Not A Foreign Currency
The government has released a statement confirming that cryptocurrencies will continue not to be included in arrangments which apply to foreign currencies.
The Albanese government intends to clarify legislation to ensure that crypto assets are excluded from foreign currency for tax purposes.
- Crypto asset investments – ATO
- SMSF Super Funds Investing in Crypto Assets – ATO
- Tax Status Update – Cryptocurrency taking centre stage with the Senate Committee – Coleman Greig
- Tax treatment of cryptocurrencies – ATO
- Bitcoin one step closer to being regulated in Australia under new anti-money laundering laws
- BizTips – Bitcoin and other cryptocurrencies: your tax reporting and record-keeping obligations
- From the U.S.: Coinbase ordered to give the IRS data on users trading more than $20,000
- Can SMSFs Invest In Bitcoin?
- TD 2014/25 Income tax: is bitcoin a ‘foreign currency’？
- TD 2014/26 Income tax: is bitcoin a ‘CGT asset’？
- TD 2014/27 Income tax: is bitcoin trading stock?
- TD 2014/28 Fringe benefits tax: is the provision of bitcoin a property fringe benefit?
- Can SMSFs invest in Bitcoin?
This page was last modified 2022-07-15