Cryptocurrencies are a new and exciting asset that will change how we handle transactions and money. This cryptocurrency tax guide will help you understand the tax implications of investing in digital currencies.

Australia’s crypto relationship is rapidly expanding, showing no signs of slowing. Understanding your tax obligations is crucial as a result.

Consider and understand how investments will be taxed before making any. Your income and life stage may suggest different investments.

Crypto Treatment

Tax authorities classify Bitcoin and other cryptocurrencies as property for tax purposes, not currency, subjecting them to capital gains tax (CGT) when sold or exchanged.

Businesses accepting cryptocurrencies for goods or services must record transaction values at receipt, potentially incurring GST liabilities. For example, when one GST-registered business sells computers to another for crypto, GST still applies.

As with any other investment, the ATO recommends that you keep records of your cryptocurrency transactions and consult a tax professional if you’re unsure about how to comply with these new rules.

There are a number of online software platforms such as Koinly or Coinspot that can produce a year-end summary or transaction report to assist you in gathering the required information to present to your tax professional for your tax return.

ATO Rules: Managing Your Tax Obligations

The ATO has updated income tax rules for crypto assets, requiring taxpayers to treat and report each asset separately on tax returns. This rule applies to three scenarios: selling or trading crypto, receiving crypto payments, and holding crypto assets.

• Taxpayers who sell or trade their crypto assets need to include the proceeds from the sale in their assessable income. Calculate any capital gain or loss at the time of disposal, using the market value at the date of acquisition and disposal, not the amount received or spent.
• If you pay someone in cryptocurrency or receive crypto for goods and services as part of your normal business activities, tax authorities consider this ordinary income and tax it at your marginal rate.
• When you use your bitcoin or other cryptocurrencies as an investment, you calculate CGT using the ‘cost base method.’ For instance, if you bought $100 worth of bitcoin in January 2017 and sold it for $200 in December 2017, you would calculate the CGT as $100.

If a Capital Gains Tax event (CGT) occurs for points 1 and 3, taxpayers can claim a 50% discount on profits from selling cryptocurrencies held for at least 12 months. This method is known as the ‘CGT Discount Method.’

Cryptocurrency is taxable, and taxpayers must report each transaction involving digital currency. Our cryptocurrency tax guide shows you how to do so without negatively impacting your lifestyle. However, there are pitfalls that you should avoid to protect yourself from a shock next tax season.

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