8 Ways to Avoid Tax on Crypto in Australia (Legally)!
Want to avoid capital gains tax on crypto? You can’t avoid tax on crypto in Australia entirely, but you can get strategic and optimise your tax position to pay less tax overall. Here are our top tips on how to pay less tax on cryptocurrency in Australia, legally.
The Australian financial year ends June 30, and you'll need to make moves before this point to optimize your tax bill.
Investors can track unrealized losses and harvest them to offset gains and reduce their tax bill.
Long-term gains from crypto held for more than a year receive a 50% discount.
Bitcoin ETFs and SMSFs offer tax benefits.
Many allowable expenses may be deducted.
Spending crypto that's a personal use asset is tax free.
Donations to registered charities are tax-deductible.
Investors can opt for FIFO, LIFO, or HIFO as their accounting method.
Legal ways to avoid crypto tax in Australia
All the following methods are legal ways to reduce your crypto tax in Australia, but it’s a good idea to talk to your tax advisor to see how they might work for you.
1. Track and harvest your losses
Nobody wants to lose money on crypto, but if your investments drop to zero, those losses can help reduce your tax bill. To use these losses, you need to realize them by selling, swapping, spending, gifting, or even burning the tokens. In cases of theft or loss, you might be able to claim a capital loss with proof.
You can use capital losses to offset other capital gains (from crypto, shares, or property), and if your losses exceed your gains, you can carry them forward to future tax years. Make sure to declare your losses in the year they happen.
To stay on top of things, use a crypto portfolio tracker like Koinly. It helps you monitor your balances, costs, total value, market price, and unrealized gains or losses.
Be careful with tax loss harvesting, where you realize a loss and plan to buy back later. The ATO’s wash sale rule says that if you sell just to create a loss and buy back the same asset, the loss won’t count. There’s no specific time period, but it’s based on intent, and the ATO has warned against this practice.
2. HODL
Holding your crypto for more than 12 months can give you a 50% Capital Gains Tax discount when you sell, trade, spend, or gift it. This means you’ll pay less tax on long-held assets.
Be strategic about when you sell. Koinly’s asset maturity dashboard can help track how long you’ve held each asset.
3. Spend crypto with personal use assets
Crypto held as a personal use asset under $10,000 can qualify for a Capital Gains Tax exemption. However, you’ll need to prove it’s a personal use asset if the ATO investigates.
Generally, the longer you’ve held the crypto, the less likely it is to qualify. If you buy crypto specifically to spend it, like buying ETH to purchase an NFT, it could count as personal use.
4. Invest in a Bitcoin ETF
ETFs are a tax-efficient way to get exposure to BTC, without all the self-custody issues. Most Bitcoin ETFs pay investors in the form of dividend distributions, known as franking credits.
Many companies pay Income Tax on their taxable income, and then distribute after-tax profits using franking credits via franked dividends. If Income Tax has already been paid by the company within an ETF, investors don’t need to pay it again.
5. Invest in a Bitcoin SMSF
Crypto Self-Managed Super Funds (SMSFs) are a means for Aussie taxpayers to include crypto in their retirement portfolio, and they come with some nice tax perks too.
When you have invested, when members of the SMSF are in the pension phase, any capital gain would be exempt from taxation.
Read next: Best Crypto SMSFs
6. Donate to a DGR
While gifting crypto isn’t tax-free in Australia, donations of crypto to a deductible gift recipient (DGR) are, and you can even claim a deduction. Provided you donate to a DGR, you’ll be able to claim a deduction equal to the market value of your crypto at the point of the donation.
7. Deduct allowable expenses
There are many allowable expenses that can be factored into your tax bill. For crypto, this includes adding any purchase or sale fees to your cost basis, which can reduce your capital gain from a later disposal.
For traders mining crypto as a business, you’ll be able to deduct mining expenses as business expenses. This could include things like rig costs and electricity.
You can also generally deduct expenses related to filing your taxes, including the cost of your Koinly plan and any accountant fees.
8. Pick the best cost basis method
Choosing the right cost basis method can significantly impact your crypto tax bill. In Australia, individual investors can use FIFO (First In, First Out), HIFO (Highest In, First Out), or LIFO (Last In, First Out).
FIFO assumes you sell your oldest assets first. It usually results in higher gains but may lower your tax bill if the long-term 50% CGT discount applies.
HIFO assumes you sell your highest-cost assets first. This can minimize gains and taxes, but you’ll need solid records to prove you followed this method.
LIFO assumes you sell your newest assets first. This can also lower gains, but may increase the tax rate you pay because of short-term CGT rates.
It's a different story for those viewed as traders by the ATO, though - they may only use the FIFO cost basis method.
Read next: What are the penalties for crypto tax evasion?
Crypto tax software can help
A crypto tax calculator like Koinly can help you track your entire crypto portfolio from one spot and know your tax liability throughout the entire financial year. Not only does it calculate your crypto taxes for you so you always know your tax liability, but you can even track your unrealized gains and losses on your dashboard so you know when to harvest gains and losses. Better still, Koinly is totally free to use. You'll only need to upgrade to a paid Koinly plan when you want to download your ATO myTax report, when you're ready to file.
