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Examples of these kinds of activities may include:. The line between personal and business activities is fuzzy in some places.
For example, at what point does a crypto mining setup turn into a commercial operation? In these situations, the ATO will consider whether the activities were carried out in a business-like manner, whether there was an expectation of commercial viability or a business plan, and other factors.
Cryptocurrency profits or losses that fall into this category will typically be subject to personal or business income tax. If your cryptocurrency activities do not fit into the above category, the resulting profits or losses will most likely be considered personal investment gains or losses, and will be subject to capital gains taxes instead.
Cryptocurrency profits or losses that fall into this category will typically be subject to capital gains tax. However, there are some exceptions to this rule which are explained in more detail below. In its guide to the tax treatment of cryptocurrencies , the ATO shares its view that Bitcoin and other cryptocurrencies with the same characteristics are neither money nor Australian or foreign currency. And even if the market value of your cryptocurrency changes, you won't make a capital gain or loss until you actually dispose of your holdings.
On the other hand, if the proceeds from the disposal of the cryptocurrency are less than what you paid to acquire it initially, you will experience a capital loss.
Capital losses can be used to reduce capital gains made in the same financial year or a future year, including investments outside of cryptocurrency. This means that when you trade one cryptocurrency for another, you're effectively receiving property rather than money in return for the first cryptocurrency. You'll therefore need to keep a record of the value in Australian dollars of the cryptocurrency you receive. Software such as CoinTracking can help you track your trades and generate capital gains reports.
It offers integration with many leading exchanges to make things even easier. In cases where it's not possible to calculate the value of the cryptocurrency you received, the capital gain can be worked out by using the market value of the cryptocurrency you disposed of when the transaction occurred. Yes, you may be eligible for the personal use asset exemption. Cryptocurrency transactions are exempt from CGT if:. However, the ATO also explains that cryptocurrency is not classed as a personal use asset if it is acquired, kept or used:.
It's also possible that your purpose for holding cryptocurrency may change during the period of ownership. For example, you may have originally acquired bitcoin for personal use and enjoyment, but after a sharp rise in the price of bitcoin later decided to hold onto your coins as an investment.
According to the ATO, the longer you hold a cryptocurrency, the less likely it is to be a personal use asset. Peter wants to buy a new leather jacket from an online clothing retailer. If you lose your private key or your crypto holdings are stolen, you may be able to claim a capital loss. However, whether or not this is possible may depend on whether you lost the cryptocurrency, lost evidence of your cryptocurrency ownership or you lost a private key that cannot be replaced.
If an item can be replaced, it is not considered to be lost. But a lost private key is irreplaceable, so it may be possible to claim a capital loss by providing detailed evidence, including:.
Hard forks such as the Bitcoin Cash hard fork in August , when Bitcoin Cash BCH was distributed to bitcoin holders on a ratio, present a special situation.
You will need to identify the original chain and the new fork to properly calculate your tax obligations. According to the ATO, the tax treatment of cryptocurrency you acquire as a result of a chain split is as follows:. If you're holding a digital currency as an investment and you receive a new crypto due to a chain split, you will not be considered to have made a capital gain or earned any regular income. However, if you then hold onto the new cryptocurrency as an investment, you will make a capital gain whenever you dispose of it.
When you need to calculate your capital gain, the cost base of any new cryptocurrency you acquire because of a chain split is zero. However, if you hold the new cryptocurrency for at least 12 months before disposing of it, you may be eligible for the CGT discount.
The ATO stipulates that the new cryptocurrency you receive following a chain split in this scenario will be treated as trading stock where it is held for sale or exchange during the course of ordinary business activities. This means it will need to be brought to account at the end of the income year. To properly apply the tax laws in the event of a hard fork, you will need to identify which coin is the original, and which is the new one.
The new coin is then considered to have been acquired at a value of zero at the time of the hard fork. The original coin will not always be the one that retains the same name and ticker symbol. Instead, according to the ATO, it is the one that "has the same rights and relationships as the original cryptocurrency you held. This means that you may also be able to claim deductions on your trading expenses. For help working out your crypto tax classification, we recommend that you seek professional advice from a crypto tax specialist.
While a shareholder is someone who owns shares with the purpose of earning income from dividends, a share trader is someone who carries out business activities to earn income from buying and selling shares. Working out which category you fall into is determined by evaluating numerous factors:. If you hold cryptocurrency for sale or exchange in the ordinary course of your business, the trading stock rules apply.
This means that the proceeds from the sale of cryptocurrency held as trading stock in a business are classed as ordinary income, and the cost of acquiring cryptocurrency held as trading stock can be claimed as a deduction. These are outlined in the ATO guidelines to how cryptocurrency is taxed and include:. Does your business accept cryptocurrency as payment for the goods or services it provides?
If so, the value in Australian dollars of the cryptocurrency you receive will need to be included as part of your ordinary income. These should include:. Capital gains can be calculated by subtracting the amount you paid for a cryptocurrency from the amount you sold it for. The resulting figure forms part of your assessable income and needs to be declared on your tax return. There are also some services available to help simplify the record-keeping process.
For example, CoinTracking and Sublime IP designed accounting tools for crypto investors and traders that can be linked to your crypto exchange accounts to help you calculate capital gains. Track trades and generate real-time reports on profit and loss, the value of your coins, realised and unrealised gains and more. Create a free account now! See your cryptocurrency capital gains and calculate your taxes on this Australia-based platform.
However, the most important step you can take to better understand cryptocurrency tax is to talk to an expert. You may remember going through an ID process before being able to trade. Also, keep in mind that there is international co-operation between governments when it comes to tax-related data-sharing. For example, Uber and AirBnb are international companies, and yet the ATO forces them to provide the names and exact earnings of all Uber drivers and Airbnb hosts.
The ATO have the funding, the man-power, and the motivation. And especially for those who bought through Aussie exchanges it will be easy for them to identify and hunt down non-declarers.
So ultimately my advice is that dodging the tax man is simply kicking the can down the road.