In most instances, spending crypto is taxed in Australia - so you'll pay Capital Gains Tax on any profit you've made from your crypto rising in price. However, there is one exception to this - the personal use asset rule. Find out about how the personal use asset rule works with crypto.
What is a personal use asset in Australia?
Personal use assets are capital assets worth less than $10,000 that you keep for personal use or enjoyment. This could be crypto, furniture, household items, and more. The ATO has a full list of personal use assets in its guidance. The personal use asset rule is commonly misunderstood, so here is a summary to bring you up to speed with the ATO’s guidance on crypto and personal use assets.
Capital gains and losses on personal use assets worth less than $10,000 are ignored for tax purposes.
When it comes to crypto, your crypto may be a personal use asset if it is kept or used predominantly to purchase items for personal use or consumption.
Can crypto be a personal use asset?
Yes. Crypto may be considered a personal use asset, but there are very particular conditions for this. It comes down to the intentions of holding your crypto and the length of time you held the crypto prior to selling it. The ATO guidance mentions:
“A crypto asset you acquire and use in a short period of time to buy items for personal use or consumption is more likely to be a personal use asset”
Similarly, they state that:
“A crypto asset you acquire and hold for some time before you use it, or only use a small proportion of it, to buy items for personal use or consumption is less likely to be a personal use asset.”
However, there isn’t a specific time period that the ATO has provided, so there is some subjectivity on the timeframes as to when crypto can no longer be a personal use asset. In updated ATO guidance, one example provided suggests that when an individual intends to purchase something with crypto and sells their crypto within a fortnight period - this would be an acceptable time period for a personal use asset. However, a separate example indicates that a 6 month time period is too long, and the crypto holding is more aligned to an investment rather than a personal use asset.
From the ATO guidance, we know that cryptocurrency may be as a personal use asset in the following situations:
- Example: You want to buy an NFT ticket to attend a concert so you spend Australian dollars to buy Ethereum - which you immediately use to buy the NFT ticket. The Ethereum would be considered a personal use asset because you’ve held it for a short time and used it to purchase a concert ticket for your own personal use.
- Example: You purchase $20 worth of Bitcoin monthly to pay for an online newsletter subscription service. During each of the same months, you use that Bitcoin to pay for your subscription. Your Bitcoin is always being held for a short period, with the sole purpose of paying for a service for your own consumption, therefore the disposed Bitcoin would be considered to be a personal use asset.
When won't crypto be a personal use asset?
In most instances, your crypto is unlikely to be a personal use asset. The ATO guidance is clear that:
- Crypto assets held as investments or for business purposes do not qualify as personal use assets.
- Holding crypto assets primarily as an investment disqualifies them as personal use assets. It’s important to differentiate between holding crypto as an investment and using it for personal purchases. If you’re holding it to make money from its value increasing, it’s not a personal use asset.
As mentioned above, the ATO examples suggest a 6 month time period is too long to hold an asset for personal use, as it is more likely to be an investment. A cryptocurrency is unlikely to be a personal use asset in the following situations:
- When you have to exchange crypto for Australian dollars or some other cryptocurrency to purchase the items for personal consumption.
- If you have to use a payment gateway or other payment intermediary to acquire the items on your behalf (as opposed to using crypto directly).
So use this provision with care. If you end up getting investigated by the ATO, the burden of proof is on you to show that the crypto was, in fact, a personal use asset. Also, all capital losses you make on personal use assets cannot be written off against capital gains at any point.
How can Koinly help?
Koinly helps you stay in the ATO's good books by ensuring you've accurately calculated your capital gains, losses, and income from crypto, according to the ATO crypto tax guidance. When the tax deadline rolls around, Koinly can generate a range of crypto tax reports to help you file your preferred way, including the ATO myTax report. Best of all, Koinly is completely free to use as a portfolio tracker. Try Koinly crypto tax calculator free today.
The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.