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While cryptocurrency is new(ish) in the grand scheme of “money” in exchange for goods and services, the tax department is not. If you are wondering if your Bitcoin or Ethereum is subject to tax obligations, the short answer is yes.
We delve into the different types of tax cryptocurrency investors and traders are subject to, and when each applies to an individual’s circumstances.
If you’re newer to cryptocurrency, we strongly recommend reading our Beginner’s Guide for Cryptocurrency Investing beforehand. Alternatively, you use our free Australian crypto tax calculator to estimate how much capital gains tax (CGT) you may need to pay on your crypto assets.
The Australian Taxation Office estimates between 500,000 and 1 million Australians own cryptocurrency.
While cryptocurrency first entered circulation in 2009, it wasn’t until December of 2014 that the ATO published guidance on how cryptocurrency fits into existing tax law.
The ATO has since published general guidance on cryptocurrency tax treatment in Australia.
March of 2020 saw the Taxation Office announcing their plans to target and audit cryptocurrency traders, sending up to 350,000 letters to individuals reminding them of their tax obligations.
This has left many Australians a little confused as to what those obligations actually are, so we’ve broken it down for you.
First and foremost, the Australian Tax Office (ATO) does not view cryptocurrency as money, either Australian Dollar or any fiat currency. Instead, it is viewed as ‘property,’ a CGT asset for tax purposes.
The definition from the official ATO website further goes on to say: “The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.”
When a capital gain or loss is made from cryptocurrency, the market value of the cryptocurrency in Australian Dollars at the time of disposal is used to calculate it.
Hugo purchases 10 Bitcoin in 2017 at a price of $2,000 for a total of 20,000 dollars (what a bargain). Later in the same year, he disposes or ‘sells’ those 10 Bitcoins at $50,000 for a total of $500,000. Hugo has made a profit of $480,000 Australian dollars. This profit of $480,000 is a capital gains event and is therefore likely to incur a tax obligation. There is no specific tax rate for capital gains. The capital gains are added to Hugo’s other sources of income to form his total assessable income and taxed at the individual tax rates.
Understanding whether you are categorised as a cryptocurrency investor or trader in tax is crucial to understanding your crypto tax obligations, as investors are most commonly subject to Capital Gains Tax (CGT), while traders are typically carrying on a business or profit-making activity that derives Ordinary Income.
Despite the name, and the fact you may regularly ‘trade’ cryptocurrencies, most Australians will fall under the Investor category. If your dealings with cryptocurrency predominantly involve using it as a personal investment, and the majority of your earnings are coming from long-term gains, you will likely fall under this Investor category.
In this instance, gains and losses on cryptocurrency are subject to Capital Gains Tax, or CGT.
Traders are businesses, including sole traders, that operate a business that involves cryptocurrency. To be classified as a trader, you must assess your facts and circumstances and consider how the Australian Taxation Office will view the activity. At minimum you should be:
These are only some of the factors that go into determining what is considered a business activity. There can be a number of other important factors, such as your professional education, hours spent on the activity, sophistication and scale of the activity, use of automation and many others.
Tax treatment is not a matter of choice but is based on an objective assessment of the relevant facts and circumstances. A single activity can only have one tax treatment, though it is possible to have more than one activity; with one being an investment activity and the other being a business activity. Disputes on the nature of income in mixed portfolios are common, so it is important to clearly separate and document each activity. If you’re unsure on your self-assessment of the situation, it is best to check with a tax agent who specialises in cryptocurrency.
As previously mentioned, the ATO classifies digital currency as a CGT asset, similar to a share in a company. It is therefore required to assess your capital gains each time you trade, sell or gift your crypto assets or have any other type of disposal event. There are several types of capital gains events, and we’ll discuss these in the section below.
If you own any type of asset and you make a profit after you sell, trade or gift that asset, then you’ll need to pay tax on the capital gain you’ve made.
If you purchase Ethereum at a price of $1,000 and later sell it for $2,500 then you’ve made a capital gain of $1,500, and will therefore incur a tax obligation.
If you hold an asset for longer than 12-months, it may be eligible to apply the 50% CGT discount. This is a 50% discount for individual taxpayers and 1/3% (i.e. 33.33333%) for compliant super funds.
If you are an Australian taxpayer who bought 1 Ethereum for $1,000 and sold 2 years down the track for $2,500, then your net capital gain will be discounted to $750 ($1,500 x 50%) due to the fact that you’ve held the asset for longer than 12-months.
If your cryptocurrency asset is worth less than when you originally bought it, this is referred to as a capital loss. For instance, if you purchased 1 Ethereum at $1,000 and then sold it 6 months later for $500, your capital loss is $500. Fortunately, capital losses can be used to offset capital gains.
If you made a capital gain of $1,500 on one trade and a capital loss of $500 on another trade, your overall capital gain is $1,000. This loss can be used to offset gains made in that financial year or it can be carried forward to offset gains made from future Cryptocurrency investments.
You can easily lodge your tax return through MyTax, which is available through your MyGov account. You can personalise your tax return and declare capital gains or losses by selecting the ‘Capital gains tax (CGT) related items’ option (as seen below).
An alternative to lodging your tax return through MyTax is to declare your CGT on a printable form and returning the form to the ATO by mail. There are two separate forms that you’ll need to submit: an income form and a CGT form. If you have made a capital gain, you will need to declare this next to the ‘Current year capital gains’ label. You will also need to enter any capital losses next to the ‘NET capital losses carried forward to later income years’ label.
One major misconception is that capital gains tax is paid separately to your income tax. However, your net capital gain (after applying any capital losses and the CGT discount) is simply added to your taxable income (wage, interest, dividends etc) for the year in which you sold or disposed of the asset.
Tony earns a salary of $65,000 per year. Tony buys 1 BTC for $10,000 and 8 months later sells it for $25,000 which nets him a profit of $15,000. This $15,000 gain will get added to his total assessable income within a financial year. So, Tony’s personal tax return items will look like:
Tony will then pay tax on the Gains achieved based on his total assessable income. At the current marginal tax rates for Australian tax residents, Tony’s tax for the year will be calculated as follows:
Total income tax: $16,467
2% Medicare levy tax (2% x $80,000) equals to $1,600
Total tax for the year: $18,067.
Tony may also be eligible for other tax deductions and tax offsets that will vary the final amount. Tax has also been withheld from Tony’s wage through the year, which will reduce the tax payable amount.
Compare this to Lisa. Lisa doesn’t work and bought 10,000 Cardano (ADA) at a price of 50c for $5,000 and later in the year she sold at $1.50 for total of $ 15,000 which netted her a gain of $10,000. So Lisa’s personal tax return items will look like:
Lisa will not need to pay any crypto tax on her gains as her total assessable income is only $10,000 and therefore falls within the tax-free threshold of earnings under $18,200.
If you have not exchanged your cryptocurrency for fiat currency you may think the ATO is unaware of your crypto finances. This is not the case.
The Australian Taxation Office started collecting records from Australian cryptocurrency designated service providers, or DSPs, in May 2019 to ensure individuals were tax compliant.
These DSPs include anything from cryptocurrency exchanges, payment facilitators, brokerage services and more.
The type of information collected can include your name, address, ABN, date of birth and contact details, amongst other personal information.
The Australian Taxation Office is also able to access transaction and account details, such as the status of accounts, linked bank accounts and associated wallets, types of cryptocurrency, amounts in fiat and crypto and more. The ATO has obtained data for the period from 2014–15 to 2019–20 financial years and ongoing.
With the exception of cryptocurrency gain for personal use assets (more on that later) the majority of gains and losses in relation to cryptocurrency are subject to tax, so your best bet is get familiar with it and prepare to factor it into your tax return.
Now you’re aware of the cryptocurrency tax treatment in Australia and your obligations, let’s take a deeper look at the one that affects most Aussies: Capital Gains Tax, or CGT.
CGT occurs when you dispose of cryptocurrency. According to the ATO, this could be by the following common events:
If you’re predominantly purchasing items for personal use or consumption with cryptocurrency then it will be defined as a personal use asset and may be eligible for the personal use asset exemption.
This definition of course may seem open to interpretation, but generally if you are not dealing with cryptocurrency in the following circumstances, it may be possible to classify under the personal use asset exemption:
A real-world example:
Fred is buying a new laptop from his favourite online retailer. They offer discounts on purchases made in cryptocurrency, so Fred uses Australian dollars to purchase cryptocurrency, and on the same day purchase his laptop. In this instance, cryptocurrency would be constituted as a personal use asset.
Cryptocurrency is an increasingly popular part of investment portfolios. Capital Gains Tax comes into play when you dispose of your cryptocurrency through one of the methods above.
However, while it sits in your investment portfolio, regardless of changes in market value, you do not make a capital gain or loss until you dispose of it, and are thus not liable to pay capital gain tax on unrealised gains
Digital wallets can contain different types of cryptocurrency, and while they all fall under a broad category, each type is actually regarded as its own CGT asset.
Thus, when you trade one cryptocurrency for another, you are effectively disposing of one, and acquiring another. Because cryptocurrency is regarded as property, the value of the cryptocurrency is based on the market value of the currency on the day it was acquired or traded.
To calculate the Capital Gains Tax you would look at the market value of the cryptocurrency you acquire at the time of transaction.
It’s important to note, if you have multiple digital wallets in which you store your cryptocurrency, transferring from one to another is tax free.
Gifting crypto, even if you do not receive payment for it, is still considered a disposal. As such, it is subject to capital gains tax. If you are on the receiving end, you do not have to pay tax when you receive the cryptocurrency, however if you dispose of it, that is when capital gains tax will be applied.
Various other crypto trading methods such as margin, futures, contracts, or options also exist, however, there is minimal or no guidance currently from the ATO on the tax treatment of these products for cryptocurrency. As such, it is best to talk to a reputable tax accountant specialised in cryptocurrency for further advice.
It’s essential to know the value of your cryptocurrency in Australian dollars to work out your capital gain or loss by assessing this information through a reputable online exchange.
If you’ve purchased or sold crypto directly with Australian dollars the sale and purchase prices are fairly straightforward, making sure you take into account brokerage fees included in each transaction. If purchases or sales were made in an alternative cryptocurrency though these must be accounted for at the Australian market value at the time of transaction.
Your gain or loss is simply the amount you sold your cryptocurrency for (as it equates in Australian dollars) minus what you purchased it for.
For taxation purposes, this is even easier with a service like Swyftx. Full tax reports based in Australian dollars can be generated and downloaded as needed to cover any time period you like.
We’ve demonstrated above that ordinary income derived by traders, or businesses that operate in cryptocurrency as their primary source of income.
Essentially, if you’re receiving cryptocurrency as payment for goods or services, or by mining it, this counts as ordinary income that is taxable.
Market value is applied on the day the cryptocurrency is received to determine the income amount
If you’re declaring cryptocurrency as ordinary income, you may also have related deductions. Business expenses you purchase with cryptocurrency throughout the financial year, including the cost of acquiring cryptocurrency itself, can be deducted from your annual tax return in the same way as if they were paid for with fiat currency.
Jane trades cryptocurrency for a career. She purchases 100 Coin A for a total of $10,000, and the same day sells 80 of Coin A for $12,000. Jane can claim a deduction of $10,000 for the initial purchase of 100 of Coin A, then declare the $12,000 she made selling 80 of Coin A as income. Jane must also apply the trading stock rules to determine if there is any income or deduction due to the change in value of her closing stock.
If you’re one of a growing number of Australian businesses that accept cryptocurrency in exchange for goods and services, this needs to be accounted for as part of your ordinary income and accounted for in its value in Australian dollars.
A reputable cryptocurrency exchange will be able to help you determine the value in Australian dollars.
Similarly, when you incur business expenses and pay for these in cryptocurrency, you are entitled to deductions based on the value of the acquired items, as stipulated by the Australian Taxation Office.
It is not uncommon, especially among businesses that operate by trading or exchanging cryptocurrency, to pay their employees, at least partially, in crypto.
If, as an employee, a portion of your paycheck comes in the form of cryptocurrency, like fiat currency, this is constituted as a portion of your income. As such, it is subject to Income Tax.
Exactly what you would be at your marginal income tax bracket.
What your total income is during the financial year will affect your tax bracket.
|Income thresholds||Rate||Tax payable on this income|
|0 – $18,200||0%||Nil|
|$18,201 – $45,000||19%||19 cents for each $1 over $18,200|
|$45,001 – $120,000||32.5%||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||37%||$29,467 plus 37 cents for each $1 over $120,000|
|$180,001 and over||45%||$51,667 plus 45 cents for each $1 over $180,000|
Source: Current resident tax rates 2020–21 per the ATO website.
Please note the above rates do not include the Medicare levy of 2%.
Regardless of whether you think you fall under the category of investor or trader, keeping thorough records is necessary. The ATO requires you to maintain these records for five years.
The requirements for record keeping, according to the ATO, require:
These records could be in the form of receipts of purchase, exchange records, digital wallet records or the records of your agent or accountant.
Swyftx helps taxpayers to meet their record-keeping requirements by providing comprehensive transaction records and account statements. Records can be used yourself or by your tax accountant to determine your tax outcomes.
As cryptocurrency becomes more widely used for investment and payments, more accountants offer taxation services around it.
As an alternative, Swyftx partners with Koinly and Crypto Tax Calculator, who both offer reliable crypto tax reporting to Australian taxpayers. Both Koinly and Crypto Tax Calculator provide software to help you keep track of your gains and losses, and easily convert transactions as they happen into their Australian dollar equivalent. By syncing your Swyftx account, Koinly and Crypto Tax Calculator both securely access your trading data to calculate your crypto taxes.
If you’re a Swyftx user, you can generate and download a tax report on both the Swyftx desktop and mobile application. for a step by step guide on how to do this, check out the following articles:
If you’re having trouble with generating your tax report or have any more questions on how cryptocurrency is taxed in Australia, you can reach out to our online live support.
With cryptocurrency taxation guidance not yet a decade old, it’s understandable you would have questions around how to approach cryptocurrency and your tax return. This article has broken down the most common situations but when in doubt, it’s best to check with a registered tax accountant who deals with cryptocurrency.
If you like what you’re reading, visit Swyftx’s News section for the latest updates in cryptocurrency and trading.
Approved by Kova Tax
Providing tax certainty for Swyftx users – this article has been reviewed by Kova Tax – Australia’s tech-driven accounting firm, building a better digital world for crypto investors, businesses and SMSFs.
The information provided in this article is purely factual in nature and does not constitute tax advice, financial product advice or legal advice. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The examples given do not apply to your specific circumstances.
Some of the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information reflects Kova Tax’s understanding of existing legislation, rulings and case law as at the date of issue.
If you require professional tax advice that takes into account your particular circumstances, you should consult with an adviser at Kova Tax.
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