Is cryptocurrency taxable?
If you're an Australian crypto investor, you've probably wondered about the tax implications of your investments. Unfortunately, the world of crypto tax can be confusing and complex. That's why we've put together this ultimate guide to help you understand crypto tax in Australia.
Fortunately, there's a simple rule of thumb for taxes in Australia.
If you have increased your wealth đ°, as measured in AUD, the ATO will have a way to ensure that you eventually pay taxes on it.
When it comes to cryptocurrency, the tax treatment is not much different from other types of investments, such as shares or property. If you are holding cryptocurrency as an investment, your gains will be subject to capital gains tax.
Taxation is rarely as simple as it should be. If you are an active trader or operate a crypto business, your crypto profits may be taxed as ordinary income, rather than as capital gains. For individuals, this is often the distinction between whether you are considered an investor or a trader.
Of course, there are other types of events, such as airdrops and chainsplits, that also have their own distinct tax treatment that you need to consider.
What is crypto tax?
Although cryptocurrency is taxable in Australia, there is no specific crypto tax introduced just for crypto. Instead, the Australian Taxation Office (ATO) considers crypto a Capital Gains Tax (CGT) asset. This means that it falls under the pre-existing tax rules on how we tax gains and losses on CGT assets.
đ¸ Crypto is taxed like shares - sort of
If you already understand the tax treatment of shares, that's a good starting point for understanding how your crypto is also taxed. Like shares, crypto is considered a CGT asset. So, you'll typically need to calculate capital gains and losses when selling it.
While thinking of crypto like shares is a great starting point, the types of crypto activity have now become very diverse, and there are many everyday situations where itâs no longer as simple as simply saying crypto = capital gains.
What determines how crypto is taxed
If you want to know exactly how your cryptocurrency will be taxed, there are several factors you need to consider to ensure that it's done correctly. These include:
- Entity type - are you an individual, or are you trading under a company, trust or SMSF?
- Activity type - are you investing, or are you actively trading as a business activity?
- Asset type - were you trading cryptocurrency, or was it actually a derivatives contract or other financial product?
- Transaction type - were you placing simple trades, or was it another special event such as an airdrop, chainsplit or redenomination?
Depending on how you answered those questions, you may end up with any combination of the following Australian tax outcomes for your crypto activity:
- Capital gains and losses
- Foreign currency gains and losses
- Exempt gains and losses
- Other income and expenses
- Non-assessable income and non-deductible expenses
Understanding the tax outcomes can be really helpful, as it means youâll be able to make much smarter decisions about your crypto investments, which can result in huge tax savings!
How the ATO taxes crypto
Thereâs no point talking about crypto tax, unless we also talk about the ATO. Thatâs because, whatever decisions you make about your crypto tax, youâll need to make sure it satisfies expectations and guidelines of the ATO. If not, youâll find yourself caught up in an expensive, time-consuming and stressful dispute with the ATO.
You can read the ATO cryptocurrency guidelines for tax on crypto in Australia.
Crypto tax law
While the ATO is responsible for administering Australiaâs tax law, they donât actually write it themselves. Instead, Australian tax law comes from a combination of:
Tax legislation â the actual written tax rules
Case law â cases that have been judged in court
Binding guidance â issued by the ATO
The core basis for Australiaâs income tax comes from a piece of legislation called the Income Tax Assessment Act 1997 (ITAA).
Hereâs a delightful sample from Section 6.5 (1) of the ITAA:
"Your assessable income includes income according to ordinary concepts, which is called ordinary income"
Although the rules are all explicitly written down, youâll probably agree in the above example, that the rules can be a bit vague in practice. In fact, our tax rules are actually purposely designed like this, as it ensures they can be applied broadly to everyone.
Because our tax rules are so broad, itâs often not until cases are heard in court, that we get definitive guidance on how the law should be interpreted and applied for specific real world scenarios. Youâll hear lawyers refer to this as precedent.
In Australia, there are very few examples of tax cases involving crypto that have been heard in court. That means, thereâs often not a lot to go off.
When the tax outcomes are unclear, it is then the work of tax professionals, including lawyers and accountants, to interpret the tax law that we do have, to determine the tax outcomes for everyday crypto investors.
Tax professionals need to consider two things when determining the correct crypto tax treatment:
- how do they as a tax professional interpret the tax law
- how will the ATO interpret and apply the tax law
Most taxpayers donât want to get themselves into a dispute with the ATO, so the majority of tax advice issued will closely follow the ATOâs own interpretation of the tax law.
Does the ATO track my crypto?
Yes, the ATO tracks your crypto transactions.
Here's how they do it.
When you register on an Australian Digital Currency Exchange (DCE), your identity is verified through a mandatory KYC process. This means that every trade you make on the DCE is directly linked to you.
Since April 2019, the ATO crypto data-matching program has been in operation with all major Australian digital currency exchanges. As a result, the ATO has the ability to track and monitor crypto transactions. The ATO already uses this information to alert crypto investors about their tax obligations, and it is likely to use it for enforcement activities in the near future.
đ ATO knows about your crypto
âIf you have an account with an Australian digital currency exchange, then it is almost certain that the ATO already knows about your crypto investments through its data-matching program.
While we havenât heard of the ATO tracking crypto on-chain just yet, itâs really only a matter of time. On-chain transactions are public and immutable, giving the ATO plenty of opportunities in the future to address illegal tax avoidance.
If youâd rather avoid receiving a letter, being reviewed or audited by the ATO, then we definitely recommend you do your crypto taxes.
Is crypto taxed differently as an investor vs trader
The ATO understands the distinction between an investor and a trader, and it can have significant implications when calculating the resulting tax outcomes.
Weâre going to look at how tax is calculated for both these cases, and then weâre going to answer the all important question, of whether youâd rather be taxed as a crypto trader vs an investor? Knowing the tax differences, may actually influence your own decision on whether you actively trade or simply hold to invest.
Who is a trader for tax?
A trader is someone who generates income through frequent trading of cryptocurrency. The following factors contribute to you being considered a trader for tax purposes:
- Having a business plan and trading strategy
- Trading frequently
- Keeping records of all transactions
- Keeping detailed trading journals
- Obtaining professional advice or education related to trading
- Subscribing to professional trading services
- Obtaining a commercial loan to fund business activities
- Renting an office
Who is an investor for tax?
An investor is someone who is holding cryptocurrency for a future capital gain or to generate a passive return from the asset. Youâre likely to be an investor if:
- You hold crypto for a long period of time
- You expect to build wealth passively over a long period of time
The ATO considers that most Australians who have crypto are likely to be investors. However, this ultimately depends on your specific circumstances.
Crypto tax as an investor in Australia
If you are holding cryptocurrency for long-term investment, you will eventually have to pay Capital Gains Tax (CGT) on your gains when you sell it.
Actually, it would be more correct to say that youâll have CGT whenever you dispose of your crypto. Thatâs because CGT doesnât just apply when you sell crypto back to AUD, it applies to all types of disposal events, such as:
- selling crypto for AUD
- swapping crypto for another crypto
- using crypto directly to make a purchase
- gifting crypto to another person
- and many moreâŚ
đĄ CGT Rule of Thumb (true most of the time)
âWhenever you had a crypto asset, and now you donât, itâs going to result in a CGT event. When a CGT event occurs, you must calculate the resulting gain or loss and report it on your tax return.
The good news is that you are also eligible to claim any capital losses that you have incurred. You can use these losses to offset any other capital gains that you may have now or in the future.
How to calculate CGT on crypto
đ TLDR;
Crypto goes up â pay tax on gains
Crypto goes down â claim loss to reduce your gains
Hold crypto for over 12 months â eligible for the 50% CGT discount
50% CGT discount â the most important tax incentive available for crypto investors, and a huge impact on long-term wealth generation.
Capital gains on cryptocurrency investments are determined by calculating the difference between the cost of acquiring the crypto (including associated costs such as brokerage fees) and the proceeds from selling the crypto.
If the value of the crypto increased, it's considered a capital gain. If the value of the crypto decreased, it's considered a capital loss.
CGT discount
One of the most incredible aspects of crypto being classified as a CGT asset is the CGT discount. As a crypto investor, it's essential to understand this tax incentive, as it's by far the most effective way of minimising your crypto taxes.
đ° 50% CGT Discount
âIndividuals who hold crypto investments for more than 12 months are eligible for a 50% CGT discount.
Simply put, the CGT discount can cut your tax bill in half.
Real CGT example
Let's consider a real example of how capital gains are calculated.
â ď¸ Warning: these calculations can get a bit complicated. Although you'll ultimately use software with a crypto tax calculator for CGT, we believe it's still worth understanding how it's calculated so that you can make better investment decisions.
đĄ Purchase bitcoin
âOn the 10 June 2019 you purchase 2 bitcoin for a cost of $20,000 plus a brokerage fee of $200.
The cost base of the 2 units of bitcoin can be calculated:
Cost base = $20,000 + $200 = $20,200
Cost base per unit of bitcoin = $20,200 / 2 = $10,100 per bitcoin
Sell the bitcoin (3 months later)
In 3 months time, you decide to sell 0.5 units of the bitcoin. The sale resulted in you receiving $6,000, and you also had to pay a brokerage fee of $60.
The net proceeds from the sale can be calculated:
Net proceeds = $6,000 - $60 = $5,940
The net capital gain or loss can be calculated by subtracting the cost base from the net proceeds. In this case, you only disposed of 0.5 bitcoin out of the total 2 bitcoin you purchased, so you must apportion the total cost base:
Net capital gain = net proceeds - cost base = $5,940 - (0.5 * $10,100) = $890
Sell the remaining bitcoin (12 months + 1 day after original purchase)
You then wait another 9 months and 1 day before selling the remaining 1.5 bitcoin on 11 June 2020. The sale resulted in you receiving $50,000, and you also paid a brokerage fee of $500.
The net proceeds can be calculated:
Net proceeds = $50,000 - $500 = $49,500
The net capital gain is calculated by using the remaining cost base:
Capital gain = $49,500 - 1.5 * $10,100 = $34,350
As the remaining 1.5 bitcoin were held for a period of at least 12 months, they are long-term capital gains that are eligible for the 50% CGT discount.
Final tax calculation (when you do your tax return)
While the final calculation will be influenced by any other sources of capital gains or losses you may have, if these were the only two CGT events and you had no capital losses from prior years, your resulting net capital gain would be:
Total net capital gain = $890 + 0.5 * $34,350= $18,065
If you want to understand how this works in excruciating detail, then check out our other article on how to calculate capital gains tax on crypto where we run through plenty more examples.
Capital gains tax on swapping crypto (crypto-to-crypto)
A direct crypto to crypto swap is called a barter transaction and although you donât receive cash, you do receive another asset that does have value. So the crypto you got rid of in the swap, has now been disposed, and youâll need to calculate CGT.
Capital Gains Tax still applies when you are swapping one crypto directly for another, such as swapping Bitcoin for Ethereum.
To determine the correct gain, youâll need to determine the market value of the crypto asset in AUD at the time it was swapped.
Read more on the tax treatment of crypto to crypto swaps.
Parcel matching - FIFO or LIFO or LTFO
Hereâs a quick question to consider, thatâs going to help you understand the second most important factor for minimising your crypto taxes.
đ° Which bitcoin did I sell?
âOn 1st July, you purchased 1 bitcoin at a cost of $10,000. Then, a month later, you purchased another bitcoin at a cost of $30,000. A few months later, you decided to sell one of your two bitcoins for $40,000.
The question is, which bitcoin did you sell? Did you sell the one you bought for $10,000 or the one you bought for $30,000? And does it make a difference which one you choose?
The decision of which bitcoin you sold in this scenario has a massive impact on the final tax outcome. Let's explore both scenarios.
- If you sold the first bitcoin, your total gain would be $30,000, calculated by subtracting the purchase price of $10,000 from the sale proceeds of $40,000.
- If you sold the second bitcoin, your total gain would be $10,000, calculated by subtracting the purchase price of $30,000 from the sale proceeds of $40,000.
Would you rather pay taxes on a $30,000 gain or a $10,000 gain?
As an investor in Australia, you have the option to sell either one, or even choose to sell half of each or any combination you wish. With that in mind, we should obviously choose the option with the lower tax outcome.
Parcel matching algorithms
If you have a few hundred trades, you won't want to go through each sale manually to determine which cryptocurrency you sold. That's where parcel matching strategies come into play.
If you have heard of FIFO before, then you know it stands for "First-In First-Out." This means that whichever cryptocurrency you purchased first will be the first one you sell. However, this may not always provide the best tax outcome, as we saw in the example.
Sometimes you might hear the term LIFO, which stands for âLast-In First-Outâ. This means that the last cryptocurrency you purchased will be sold first. However, this method also isn't perfect, as the last parcel may not always result in the best tax outcome.
đ° Almost any parcel matching method is allowed in Australia
Weâre lucky in Australia, because weâre not just limited to FIFO or LIFO. We can actually do just about any parcel matching strategy weâd like.
So thatâs where parcel matching algorithms come into play, and a good crypto tax calculator will be really smart at deciding what crypto was sold to optimise for lower tax.
Lowest-Tax First-Out (LTFO) is a proprietary algorithm designed to minimise taxes on cryptocurrency transactions. The exact implementation of this algorithm varies, depending on its creator.
Syla pioneered the use of LTFO in Australia and boasts the most sophisticated tax optimisation logic within its matching algorithm.
Understanding LTFO is quite simple: the algorithm examines all possible alternatives to select the one that results in the lowest tax liability for you. If you engage in frequent trades throughout the year, using LTFO can significantly reduce your tax burden.
If you aren't using a crypto tax calculator with software tailored for Australia, you'll be limited to using basic FIFO or LIFO methods. That means you could be missing out on substantial tax savings. In matters related to taxation, using Australian-specific products is often the most sensible approach.
Crypto tax as a trader in Australia
If you're a cryptocurrency trader rather than an investor, you'll encounter a distinct tax treatment in Australia.
Profits from buying and selling cryptocurrencies are not subject to CGT but are instead assessed as ordinary income.
This difference arises because traders primarily aim to profit from short-term buying and selling rather than realising gains from long-term holdings, as investors do.
One significant disadvantage of being a trader is the absence of the 50% CGT discount for holding investments longer than 12 months.
Trading is a business activity
When youâre a crypto trader, it actually means youâre in the business of trading crypto. So even though you may not have a company or any customers, you can still be in the business of trading cryptocurrency when youâre actively trading on an exchange.
As a business, your cryptocurrencies are considered trading stock, and you must apply the trading stock rules when calculating tax outcomes.
Income from trading
For crypto traders, every sale of cryptocurrency is recorded as income, and every purchase is a deductible expense. Additionally, you need to calculate and declare any increase or decrease in the value of your trading stock. To do this, you must carefully follow specific calculations and methods.
Is it better to be a crypto trader or investor for tax purposes?
You can't simply choose whether you're a trader or an investor for tax purposes; it's determined by your activities over the year.
However, understanding the tax differences between the two may influence your decision on whether to actively trade or hold for long-term growth.
Advantages of being an investor
Thereâs one huge advantage to being an investor, and thatâs access to the 50% CGT discount on investments held over 12 months. If youâre holding investments over 12 months, then youâll definitely want access to this discount, as it can literally cut your tax bill in half.
Unlike investors â traders donât get access to the 50% CGT discount. đ
Advantages of being a trader
While the CGT discount is a great tax incentive, if youâre not actually holding investments over 12 months, then the CGT discount isnât going to have any impact anyway. If thatâs the case, then you might still be interested in the tax advantages of being a trader.
Because the profits you earn from trading are classified as ordinary income, it makes it much easier to claim immediate tax deductions on your trading related expenses.
Typical expenses that traders can claim include:
- Costs incurred in purchasing crypto are immediately deductible, instead of being capitalised into cost base.
- Purchases of equipment over $300 may be eligible for the instant asset write-off, or can otherwise be depreciated.
Thereâs also additional opportunities for tax optimisation, that can have a big impact in down years.
- Unrealised losses can effectively be claimed as reduction in value of closing stock.
- Net losses can often be claimed against other sources of income, such as your salary.
Which is better?
If your crypto increased in value and you held it for over 12 months, being treated as an investor is preferable for tax purposes, as you'll benefit from the 50% CGT discount.
If your crypto increased in value but wasn't held for over 12 months, being treated as a trader is often preferable. Since you won't get any benefit from the 50% CGT discount anyway, you'll instead have more flexibility in claiming expenses and additional tax optimisation opportunities at the end of the financial year.
If your crypto decreased in value, being taxed as a trader is preferable, as you may be able to claim losses against other income sources, such as your salary.
Our tax team went into a lot more detail on crypto trader vs investor tax treatment.
Tax on crypto derivatives
Crypto derivatives are not cryptocurrencies and are typically treated as ordinary income.
Crypto derivatives are popular for their leverage, where a small change in the price of the underlying crypto asset results in a larger profit or loss in the derivative product. Common crypto derivatives include:
- Futures (particularly perpetual futures)
- Options
- CFDs (popular on regulated platforms in Australia)
When trading derivative contracts for profit, it is important to note that gains or losses are typically classified as ordinary income rather than capital gains.
In some cases, platforms offer a leverage effect through a margin facility. This allows you to borrow from the platform or another user, and use the borrowed assets to finance a purchase or sale. This practice, commonly known as margin trading, has a distinct tax treatment compared to derivative products.
If you have used borrowed funds to invest in cryptocurrency, the classification of gains or losses as capital gains or losses may still apply. The determining factor will be the purpose for which you used the borrowed funds.
Tax implications for NFTs
NFTs, or non-fungible tokens, are unique digital assets stored on a blockchain. They represent ownership of various digital assets such as art, collectibles, and virtual real estate, among others.
The ATO considers NFTs to be CGT assets, resulting in similar tax outcomes as traditional cryptocurrencies.
When an NFT is held as a long-term investment and subsequently disposed of, any gains made will be subject to capital gains tax. The cost base of the NFT includes the purchase price and any related expenses, such as transaction fees.
NFTs pose challenges from a tax perspective due to their uniqueness. Each NFT has its own market value, which cannot be easily determined from an exchange. This complicates tax calculations that often require market value data.
Another implication of NFTs being unique assets, is that there is no opportunity to use a parcel matching algorithm that optimises for lower tax. If you sell an NFT, you know exactly which one you sold and you have to use the corresponding cost base for that specific NFT when calculating the net capital gain.
For those registered for GST (Goods and Services Tax), it is important to note that NFTs are not classified as digital currency for GST purposes and are subject to standard GST rules.
Taxation on crypto corporate events
Airdrops
An airdrop is a distribution of cryptocurrency tokens to holders of a specific blockchain. Blockchain projects or companies often use airdrops to promote their projects, expand their user base, and distribute their tokens more widely.
According to ATO cryptocurrency guidance, airdropped tokens are considered ordinary income, based on the market value of the crypto when received. When receiving an airdrop, you must report the value of the received crypto as income in your tax return.
The reported income amount then becomes the cost base for the crypto, which will be used to calculate capital gains tax when sold.
For more information, read about tax on airdrops.
Initial allocation airdrops
The ATO has established a special distinction for initial allocation airdrops, which are the first distribution of crypto tokens by a project that have not been traded before the airdrop.
Initial airdrops are not considered ordinary income when received. The cost base will depend on how you obtained the airdrop:
- If received for free, the cost base is zero.
- If you made a payment to receive the crypto, the cost base is the amount you paid to acquire it.
The disposal of initial airdrops will have capital gains tax implications when sold in the future.
Staking rewards
Staking involves holding and locking up a certain amount of crypto to participate in validating transactions on a blockchain network and earn rewards.
The ATO advises that staking rewards are considered ordinary income based on their market value at the time of receipt.
The declared income in your tax return then becomes the cost base for that crypto going forward.
When disposing of staking rewards, you will typically be subject to capital gains tax.
Chain splits and forks
Chain splits (or forks) occur when a blockchain network divides into two separate chains due to a software upgrade, community disagreement, or intentional split.
The ATO has provided guidelines on the tax treatment of chain splits for investors:
âď¸ Chain split (where the original chain still exists)
There is no immediate tax effect or ordinary income when receiving crypto as a result of a chain split. The new crypto asset has a zero cost base, and you only pay tax when disposing of the asset. If held for more than 12 months before disposal, you may be eligible for a 50% CGT discount.
Example:
âYou held 10 Bitcoin during 1st August 2017, and you also received 10 Bitcoin Cash as a result of a chain split. There is no capital gain or ordinary income received from this chain split.
If you then decide to sell the Bitcoin Cash in May of 2018 for $4,000 AUD, you have to calculate the capital gains from the cost base of zero. So thereâll be a total capital gain of $4,000.
In chain splits, the ATO requires determining which crypto is the new asset by examining the rights and relationships of the held crypto after the split.
In the above example, BTC was a continuation of the original chain with the same rights and relationships as before, so it is the continuing asset. BCH is the new asset that resulted from the chain split, so itâs the asset with the zero cost base.
Tax on crypto ICOs and IEOs
ICOs and IEOs can be complex, as they often represent interests in underlying managed investment schemes, company equity, or other rights to receive income or benefits. The correct tax treatment depends on the specific ICO project and requires understanding the product or project in detail, including its legal structure.
Loans collateralised with crypto
When borrowing fiat or another crypto using your existing crypto as collateral, it is important to examine the lending agreement or platform's terms and conditions.
Determine whether you still retain ownership of the collateralised crypto. If you no longer own it, a CGT event occurs, and you must calculate the resulting capital gain or loss.
If you still own the crypto and the loan provider holds it in custody, there may be no CGT disposal event and no immediate tax consequences.
Loan arrangements for crypto are specific to the lending platform or provider, so analyzing the loan agreement is crucial to understand the tax implications.
Cryptocurrency mining in Australia
Bitcoin mining involves operating computational hardware to produce (earn) bitcoin.
In most cases, crypto mining is considered an income-producing activity, making it a taxable activity. Any mined crypto must be declared as assessable income in your tax return.
As mining crypto generates income, you are allowed to claim expenses incurred in producing the income. Typical expenses include:
- Purchases of hardware (computers, GPUs and ASICs)
- Electricity costs
- Instant asset write off on eligible equipment
- Depreciation of hardware not immediately deductible
- Mining software subscriptions or purchases
- Maintenance costs of hardware
When incurring electricity expenses for both private and business purposes, you must apportion your deduction.
If you incur a loss from mining crypto, you may offset the loss against other income sources, such as employment. Ensure you satisfy the non-commercial loss rules before doing so.
If you cannot offset the loss immediately, you can carry it forward for future years when you make a profit.
đĽď¸ Mining as a hobby
A hobby miner engages in crypto mining activities as a hobby or personal interest, rather than for business or commercial gain. Hobby miners typically do not operate on a large scale, use specialised equipment, or make significant profits from their mining activities.
If you mine crypto as a hobby, you do not need to report income when you receive mined crypto. Any crypto mined as a hobby is considered a capital receipt and is subject to capital gains tax when the mined crypto is sold or disposed of.
Unlike business miners, hobby miners cannot deduct costs associated with crypto mining.
It is crucial to note that the distinction between hobby mining and commercial mining is not always clear and is determined on a case-by-case basis.
Tax free crypto transactions in Australia
By default, all disposals of crypto will have taxable outcomes.
The is one major exception though, which is the personal use asset exemption.
If you purchase and dispose of crypto for personal use, thereâs a chance you fall under the personal use asset exemption, and if the total cost of the disposed assets is less than $10,000, the disposal may be exempt from capital gains tax.
Personal use tax exemption
When disposing of crypto for personal use, you may be exempt from paying Capital Gains Tax on any gains made.
To be eligible for the exemption, you must meet the requirements:
- it must be a personal use asset, and
- the original cost of the personal use asset was less than $10,000
Unfortunately, the ATO has strict guidelines for what they consider personal use, with the most crucial factor being timing. The longer you hold your crypto, the more likely the ATO will consider it an investment, even if you eventually use it to purchase personal goods and services.
Hereâs an example from the ATO:
đŤ ATO Personal use exemption example
Michael wants to attend a concert. The concert provider offers tickets with a discount on the price for payments made in crypto.
Michael pays $270 to buy crypto assets, which he then uses to pay for the tickets on the same day.
Under these circumstances, Michael acquires and uses the crypto assets in a short period of time to buy personal items. As such, the crypto assets are personal use assets.
If you buy and use the crypto on the same day, you should be fine. However, if you hold any longer, even for a few days, the ATO will consider your crypto an investment, making it taxable.
Determining personal use
There is no exact checklist for determining personal use, but there are strong indicators that would suggest a disposal could be considered a personal use asset and exempt:
- Acquire a reasonable amount of crypto assets expected for personal use expenditures, scaling with an individual's lifestyle and specific circumstances.
- Store crypto assets intended for personal use in a separate wallet or service, clearly distinguishable from other crypto assets held for investment purposes.
- Make crypto purchases only from your personal use wallet.
- Keep records of personal use disposals to substantiate that the disposals were for personal use, including tax invoices and receipts of personal use expenses.
- Make purchases directly with the crypto instead of using a payment gateway that first converts to fiat.
- Use the crypto regularly for making personal use purchases, rather than leaving it sitting for extended periods.
Our tax team put together a complete framework on how to claim the personal use tax exemption for crypto.
Crypto gambling
Crypto is not taxed.. when itâs profits from a genuine gambling activity!
Unfortunately, when gambling youâre more likely to lose than win, and while you donât have to declare your gambling profits, it means you also donât get to claim your gambling losses.
If you earn an income as a professional gambler, it is not exempt and is still assessable as ordinary income.
Our tax team explored the topic of crypto tax and gambling.
Receiving crypto gifts
If you receive crypto as a genuine gift, you do not need to declare income. You can also record your cost base of the received crypto at market value at the time of the transaction.
When you sell gifted crypto, you will still need to calculate and declare a capital gain on the increase in value.
How to minimise your crypto tax obligations
While it's usually not possible to eliminate tax, you can often reduce or delay paying tax by employing smarter strategies to structure your investment or income-producing activity.
Certain structures are even designed to provide incentives to Australians for conducting certain activities. For example, conducting a business of crypto trading through a Pty Ltd company, will mean that your business income will only be taxed at flat rate of 25 or 30%.
Capital gains discount
It might be the third time weâve said it, but itâs still the most important tax incentive available for everyday crypto investors.
The 50% CGT discount, is the big ticket tax reduction for everyday crypto investors and something all investors need to be aware of.
Where a capital asset, such as crypto, is held for longer than 12 months and then sold, any resulting gains will be eligible for the 50% CGT discount.
The CGT discount is a huge benefit that all long-term investors can access. Just remember to hold for 12 months + one day. For example, if you purchased on 10 April 2023, the earliest you can sell is on 11 April 2024. Donât make the mistake of selling on the same day!
Claim all fees
Any expenses incurred for an income producing investment are deductible expenses. If the investment is a capital asset, such as most crypto, then even if the expenses are not immediately deductible, they can often still be capitalised into the cost base of the asset.
You should always record, save and store copies of your tax invoices and investment related expenses. Even if youâre not sure itâs deductible, you can still provide them to your accountant who will advise if and how each one can be claimed on your tax return.
Perhaps the biggest expense are your brokerage fees. If youâre an investor, these will form part of the cost base of the crypto you acquire. In effect, you get to claim the expense when you dispose of the crypto, rather than immediately when you purchase it.
Stolen assets, lost keys and insolvent exchanges
Another big tax write-off that crypto investors face are due to stolen crypto, lost access to wallets and insolvent exchanges.
When you no longer have ownership over your cryptocurrency, then there will normally be some mechanism for you to realise the loss and claim it as a tax deduction.
You will need to substantiate that the event has occurred and have no reasonable expectation that you will ever receive the assets or any value back from the assets.
Where you are holding some amount of tokens that are worthless we often find that the asset is still trading on some market and has at least a nominal market value. In this case, you need to lock-in and realise the loss. The easiest way to do this is to simply sell the tokens, or you could also consider gifting the tokens to someone else.
Our tax team went into detail on how to claim unrecoverable crypto.
Commercial / non-commercial losses
If you've conducted a business or profit-making activity in crypto trading, you may be eligible to claim a net loss against your other income sources, such as employment or other income. This can be an effective approach to reducing your tax owed when you've made a loss from crypto trading.
Derivatives and margin trading
On trading platforms that offer leverage, you may find you are not actually trading a digital currency. In fact, most of these platforms implement the leverage through the use of derivatives contracts such as Contract for Difference (CFD), Options or Futures.
Financial contracts are different to the underlying or reference crypto asset and are treated differently for tax. In many cases, the differences can actually be beneficial for active traders.
As an example, income from trading CFD contracts will be treated as ordinary income and not as a capital gain/ loss. Any net loss can often be claimed against other sources of income. Expenses incurred are often more immediately deductible.
Giving crypto as a gift or donation
Gifting a CGT asset, like crypto, is subject to Capital Gains Tax. You must calculate any capital gains or losses resulting from the disposal.
If the recipient is a deductible gift recipient (DGR), you can claim the value of the gift as a tax deduction, effectively offsetting any gain made from the disposal. You can use the ABN lookup tool to check if a charity is DGR registered.
More ways to avoid and minimise your tax
Being a team of tax geeks, this is one of our favourite topics that we love to talk about at Syla, and weâre not afraid to. Our tax team has done some huge amounts of research to dig up every possible tax saving strategy available, and make the knowledge available to everyday crypto investors:
How to do your crypto tax?
Understanding the theory is great, but putting it into practice is key. When the tax season comes, you'll need to prepare your crypto tax return.
When do I have to lodge my tax return
In Australia, our tax year goes from 1st July to 30 June the following year.
If you are completing your tax return on your own, then the due date is 31 October.
If you are using a tax agent, then you will automatically get an extended lodgment deadline of 15 May the following year.
Lodging through a tax agent effectively gives you an additional 5.5 months to lodge your income tax return, and is a valid strategy that some investors use for deferring their tax to a later date. đ
Record keeping obligations
Keeping good records is important, because unless the trades and transactions are known, thereâs no way to calculate the tax outcomes.
Records are particularly important for crypto investments, as data loss can occur when exchanges and platforms become insolvent, leaving investors without access to transaction records
The ATO requires you to keep records of all your crypto transactions such as the following:
- The date of the transaction
- The value of the transaction in Australian dollars (AUD) at the time of the transaction
- Description and reasons of the transactions
- The public address of the wallet where the crypto was sent or received
- Details of the other party involved in the transaction, if applicable
- Digital wallet and exchange records and keys
- Agent, accountant and legal costs
- Software costs relating to managing tax affairs
- Any supporting documents, such as receipts or invoices.
- Additionally, if you are a trader or a business, you should also keep records of expenses that are related to your trading or business activities, such as equipment, education and any other costs directly related to your crypto activities.
It's always recommended to keep records for at least five years, as the ATO can review or audit your tax returns for up to two or four years after the end of the financial year.
Consider using Syla to record your transactions throughout the year.
Using a tax agent
Consulting a tax specialist who understands your entire situation, including crypto investments, can help you achieve the best tax outcomes.
When choosing a tax adviser, ensure they are reliable, licensed, and registered on the Tax Practitioners Board Register.
Using crypto tax software
Crypto tax software simplifies the process of reporting your crypto transactions for tax purposes. Syla, an Australian-only crypto tax software, is designed specifically for Australian tax law and provides accurate tax calculations.
Developed by Australian tax professionals, it has the most advanced crypto tax calculator module, that minimises tax using an LTFO algorithm tailored for Australian crypto investors.
With crypto tax software, you can generate an ATO-compliant Crypto Tax Report for your tax return through myTax (on myGov), or provide it to your tax agent.
Syla makes it easy to import transactions and automatically calculate and optimise your crypto tax without requiring tax expertise. Syla's Australian crypto tax calculator includes smart-logic rules to streamline the process and is an affordable option for all crypto investors.
Get started for free -> Sign up to Syla
