When it comes to cryptocurrency and tax, there are key points you’ll need to understand if you want to avoid falling foul of the ATO.
In this article, we explore what you should expect from a tax perspective if you’re dabbling in the world of crypto.
There seems to be a misconception that cryptocurrencies such as Bitcoin and Ethereum aren’t taxable because they are independent of traditional banks and our central monetary authority.
In reality, the ATO doesn’t view crypto as regular fiat currency at all. It treats it as an asset class (similar to shares) and that means it’s likely to be taxable.
Further, swapping one cryptocurrency for another is considered by the ATO to be a sale and purchase. Therefore, the sale may have triggered a taxable event.
So, what should you do?
If you, or a family member (often an adult child), has or is considering investing or trading in crypto, the most important point is to keep detailed records. Clear records will make it much easier for you to meet your tax obligations.
The potential complexity of holding, trading and transacting with crypto and the time required to gather historical records for calculating your tax obligation could translate to additional accounting fees – another reason why keeping detailed records is strongly advised.
We recommend keeping a record of:
- The date of transaction
- Value in AUD
- Name of the buyer and purpose of transaction
- Receipts of purchases and transfers
- Records of your agent, accountant and legal costs
- Evidence of software costs necessary for managing your crypto trading and tax affairs
What if the horse has already bolted?
So, you bought some popular coins, sold at a good time, made impressive gains and… spent it all.
The worst thing you can do now is assume you’ll fly under the radar. If you haven’t already received one, expect a letter from the ATO notifying you that they’re aware you have crypto assets – even if they’ve already been disposed of.
On the other hand, if you have crypto and plan to hold onto it for more than 12 months, you could be eligible for a 50% capital gains tax (CGT) discount if you hold them as an individual or via a trust. Super funds may be eligible for a 33.3% discount, but companies are not eligible for any discount.
Next steps…
Whether you consider yourself a trader or investor, there are a broad range of considerations the ATO has noted for determining the taxable events for cryptocurrencies. Your best course of action is likely to be working out the best way to document and declare your crypto assets, as well as squaring away any debt you may owe the ATO.
While there are plenty of resources online to help you find out more, there are likely to be tax consequences specific to your situation that you’ll need your accountant to assist you with.
As we’ve mentioned earlier, the key take away from this article is: The ATO knows!
Acting sooner rather than later will help clarify your crypto tax obligation and help you coordinate a payment plan that’s acceptable to the ATO if you are unable to meet your tax liability.
If you need advice about this or any of the other topics we write about, please contact us on (07) 5438 8088 or email mail@corebusiness.com.au.
Core Business Accountants specialise in business advice for growing and mature family-owned and small and medium-sized businesses.
