The use of cryptocurrency is growing every day in Australia, but what actually is it? More importantly, how does crypto tax affect you?
First things first:
What is cryptocurrency?
Cryptocurrency, usually shortened to crypto, is used to describe a digital or ‘virtual’ currency. Crypto is similar to normal currency when it comes to spending but it differs in the fact that nobody controls it and there are no physical coins or notes. It is just the transfer of digital assets. As crypto is considered an asset, crypto tax is also regulated differently to money.
What everybody needs to know about crypto tax
With the ATO specifically targeting crypto in recent years, it’s important that you understand the tax consequences of owning cryptocurrencies. If you’ve sold, bought or earned interest from crypto during the last financial year (1 July – 30 June), you’ll need to declare your crypto totals on your next tax return.
How is crypto taxed in Australia?
First, let’s define an important word that has a special meaning for your tax return:
Dispose means to sell, gift, trade, exchange, convert or use your crypto to buy things. If you exchange bitcoin for another type of cryptocurrency, or for an NFT, or for cash, any one of those transactions means you disposed of some cryptocurrency.
The ATO taxes cryptocurrency as a “capital gains tax (CGT) asset”. This means you must declare the transactions (on your tax return) for every time you traded, sold or used crypto.
The ATO does not see crypto as money, and they don’t class it as a foreign currency. They instead list crypto as property, which is why it is considered an asset for capital gains tax purposes.
How does the ATO know about your crypto?
Our clients often ask us, “how does the ATO know about my crypto?” And some people ask why they received a letter asking them to declare their crypto taxes (if they hadn’t already).
If you have an account with any Australian cryptocurrency provider, then it’s very likely that the ATO already has your data. The ATO could even have your crypto transaction data from as far back as 2014. The ATO has information you provided when signing up to Australian crypto exchanges or wallet providers. And the ATO is constantly increasing the number of sources and types of data they can legally get hold of. Owning crypto, and even using foreign coin exchanges, does not mean you can hide money or earnings from the ATO.
The ATO is getting very serious about tracking cryptocurrency, which means, people who did not do it right could face big ATO debts in the future.
Are crypto to crypto trades or swaps taxed?
Yes, any swap or exchange of cryptocurrencies is a taxable event in Australia. For example, if you exchange Bitcoin for Ripple, the ATO and other tax agencies will treat this as a sale (disposal) of Bitcoin at the market price you received at the time.