Australia Crypto Tax Loss Harvesting Guide

Tax loss harvesting can save you money at tax time, but there are some key dates & rules you need to know. Learn about tax loss harvesting in Australia. 🇦🇺

What is tax loss harvesting?

Also known as tax loss selling, tax loss harvesting is a legal tax reduction strategy. It involves selling an underperforming asset at a loss in order to offset that loss against taxable gains.

The ATO is clear that capital losses may be offset against gains to reduce your overall tax bill, but there are some rules you need to know about.

ATO tax loss harvesting rules

For starters, your capital losses must be used at the first opportunity. So if you have capital gains as well as losses in the same financial year, you must use your losses that year to offset.

If you have no capital gains to offset your losses against, you can carry forward your net capital loss to deduct it from your capital gains in later years. There's no time limit on how long you can carry forward losses, but you must use them if you have gains.

There are also several non-allowable capital losses, including:

• Personal use assets

• Assets that are exempt from Capital Gains Tax

• Collectibles under a certain value

Read next: Australia Crypto Taxes Guide

How tax loss harvesting works

Tax loss harvesting is easiest to understand with an example.

Some investors may then think they can buy back the asset they realized a loss on, effectively creating a paper loss for tax purposes. But the ATO has specific rules to stop Australian investors from creating artificial losses for tax purposes.

Wash sale ATO rules

A wash sale occurs when an investor sells an asset at a loss and then repurchases the same or a similar asset, intending to create a tax benefit. This tactic is also referred to as a paper loss or artificial loss.

The Australian Taxation Office (ATO) is well aware of this strategy. To prevent investors from using wash sales to offset capital gains, the ATO has implemented tax loss selling rules for capital assets.

Unlike some tax authorities around the world that specify a time window, usually between 30 to 60 days, during which a sale and repurchase would be considered a wash sale, the ATO does not define a fixed period. Instead, the ATO focuses on intent, examining a range of factors to determine if a transaction constitutes a wash sale.

If the ATO concludes that you’re engaging in a wash sale, any capital losses from these transactions cannot be used to offset capital gains. In previous years, the ATO has repeatedly warned investors not to engage in wash sales as they'll be disallowed and may face interest and other penalties.

Read next: What’s the penalty for crypto tax evasion?

Key tax loss harvesting dates

You need to optimize your position by no later than June 30 each year for it to count towards your tax return later that year, which is due October 31.

Read next: How to file your crypto taxes with myTax

How to tax loss harvest crypto with Koinly

No clue where to start with tax loss harvesting crypto? A crypto tax calculator like Koinly can help. Here’s how it works.

First, you need to know your overall tax liability for the year. Koinly can do that for you. Just connect your wallets and exchanges, and Koinly will calculate your existing gains, losses, and income.

So in our example, you can see we have a sizable gain for the financial year so far. But we don’t want to pay tax on that large an amount. Now we can go over to our dashboard to use our tax optimization tool.

As you can see, your tax optimization tool will show your current realized capital gains for the financial year, as well as your post-harvest gains.

To amend your post-harvest gains, you can simulate selling different cryptocurrencies from the asset table below to see the impact it would have on your tax bill. So, as you can see in our example, our AXS and COMP tokens are significant long-term losses we could harvest, while our swETH and WETH tokens are small short-term losses we could harvest. If we sold (or otherwise disposed of) these, we could reduce our taxable gains by more than $17,000.

When the time comes to file, all we need to do is download our crypto tax report and either file with the ATO using myTax or hand the report over to an accountant.