Crypto investor vs. trader

This year, the Australian Tax Office will be paying closer attention to cryptocurrency than ever before. It’s been estimated that the ATO will be writing more than 400,000 warning letters to Australian cryptocurrency investors who use some cryptocurrency exchanges. 

It’s important to remember that your cryptocurrency will be taxed differently based on whether you are considered to be an investor or a trader. While investors will pay capital gains tax when they dispose of cryptocurrency, traders pay income tax. 

Here’s a breakdown of the differences between investors and traders as per the ATO’s guidelines. 

Investor

Investors typically buy cryptocurrencies for the long-term and are primarily interested in building up their wealth over time. Most retail crypto investors would likely fall into this category. 

Trader

If you’re mining or trading cryptocurrency in what the ATO describes as an “organized, business-like manner”, you may be considered a trader. Here are a few signs that you may fall into this category: 

  • A significant capital investment 
  • A focus on generating profits in the short-term 
  • A large volume of trades on a daily or weekly basis
  • Documentation and assets that suggest business-like activity such as revenue projections, an Australian Business number, and dedicated office space

 

Of course, the lines between what constitutes a “trader” and an “investor” can get fuzzy at times. If you’re not sure which category you fall under, you should consult a tax professional. 

Can you be both a trader and an investor? 

In certain scenarios, it is possible to be both a trader and an investor. For example, a businessperson that owns a crypto mining business but also has personal crypto investments would most likely fall into this category. 

If you are both an investor and a trader, you will need to report all your transactions as an investor and all your transactions as a trader separately. This means that it’s important to keep your trading and investing wallets separate to prevent confusion when it’s time to lodge your tax return. 

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