The ATO has been focussing a lot of their attention on the tax treatment of crypto transactions, so it’s vital that you keep very specific records in relation to your crypto transactions. Sound a bit over your head?We’ll try and bring it back to the basics so you can stay on top of your crypto tax obligations!
In the words of the ATO, 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.
Broadly speaking, if you are a crypto “investor”, CapitalGains Tax (CGT) is what will get you. If you are in the actual “business” of trading cryptocurrency, all gains are assessable income and all losses are deductions.
Not sure if you are an investor or trader? Factors that determine someone being a trader is the use of trading systems, the volume of transactions (this needs to be excessive), the existence of a business plan, a profit motive, and records being kept in a business-like manner. Generally, if you’ve quit your job and you are trading crypto full-time, you’re likely to be a trader.
For the purpose of this article, we will assume you are an“investor” so will be sticking to the Capital Gains Tax path.
You may have heard a rumour that crypto gains are only taxable when holdings are cashed back into Australian dollars. Unfortunately, this is not the case. There are many different taxing points with crypto, and we have provided a summary of the most common ones below.
• Sell or gift cryptocurrency
• Trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
• Convert cryptocurrency to fiat currency (a currency established by government regulation or law), such as Australian dollars, or
• Use cryptocurrency to obtain goods or services.
You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.
If you hold your cryptocurrency as an investment for12 months or more, you may be entitled to the CGT discount to reduce a capital gain you make when you dispose of it.
If you have a net capital loss, you can use it to reduce a capital gain you make in a later year. You can't deduct a net capital loss from your other income.
You must keep records of each cryptocurrency transaction to work out whether you have a made a capital gain or loss from each CGT event.
Good record keeping is the key to success!
You need to keep the following records in relation to your cryptocurrency transactions:
· The date of the transactions
· The value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
· What the transaction was for and who the other party was (even if it’s just their cryptocurrency address).
The sorts of records you should keep include:
· Receipts of purchase or transfer of cryptocurrency
· Exchange records
· Records of agent, accountant and legal costs
· Digital wallet records and keys
· Software costs related to managing your tax affairs
Wishing you good luck is a good start with crypto trading but, investing as part of a strategy you’ve put in place is how you’ll get the most out of your crypto experience.
If you’d like to discuss your strategy around investing in crypto (or anything else), alongside other accounting implications, we’d love to chat. Speak with one of the Attune team on 1300 866 113 or click here to start the conversation on email.