If you’ve bought or sold cryptocurrency in the last financial year, it’s vital that you understand your Australian crypto tax obligations. You need to pay tax on Bitcoin and other cryptocurrencies in Australia, but how you’re taxed can vary depending on the type of crypto transaction and your circumstances.
In this guide, we look at the basics of cryptocurrency tax in Australia to help you learn what you need to do to keep the Australian Taxation Office (ATO) happy.
Do you have to pay tax on cryptocurrency in Australia?
In most cases, the answer to this question is yes. Generally, investors will have crypto profits taxed as a capital gain in Australia. This isn’t all bad news though – if you hold the same crypto asset for over 12 months, you may be entitled to apply a 50% discount on your capital gain. Additionally, you may wish to report any realized losses which could be offset against future gains.
To understand your tax obligations, you’ll need to work out whether you’re an investor or a trader.
Tax works differently if you’re a crypto trader or investor
Your tax responsibilities vary depending on whether the ATO classifies you as a crypto investor or trader. The distinction between the two comes down to whether you’re carrying on a business or not.
Most people who buy and sell crypto with the intention of earning an income will fall into the investor category. This means you’ll be taxed under capital gains tax (CGT) rules.
But if you buy and sell large quantities of crypto in a business-like manner, the ATO may deem you to be carrying on a crypto trading business. If that’s the case, your earnings are classified as business income and subject to income tax.
As most people will be classed as investors, let’s start by taking a look at how cryptocurrency tax works for investors.
Cryptocurrency tax for investors
The ATO doesn’t consider crypto to be a form of currency. Instead, if you’re an investor, the tax office treats cryptocurrency as a capital gains tax (CGT) asset – just like shares and a range of other investments. You’re not taxed when you buy crypto, but a CGT event occurs when you dispose of a cryptocurrency by:
- Selling it for Australian dollars
- Exchanging it for another cryptocurrency
- Trading it
- Gifting it to someone else
- Paying for goods or services
If you make a capital gain when you dispose of cryptocurrency, you’ll need to pay capital gains tax. For example, if you buy $4,000 worth of Bitcoin as an investment and then later sell it for $5,000, you’ll need to pay tax on the resulting $1,000 gain. However, if you hold your cryptocurrency for more than a year before selling or trading it, you may be entitled to a 50% CGT discount.
On the other hand, if the proceeds from the disposal of the cryptocurrency are less than what you paid to acquire it initially, you will experience a capital loss. Capital losses can be used to reduce capital gains made in later years, including investments outside of cryptocurrency.