banner border

Guides

Australia Crypto Tax Guide 2022

Last updated: Wednesday, 1 December 2021

The Australian Tax Office (ATO) has set out clear guidelines on how crypto is taxed: Cryptocurrency transactions attract both Capital Gains Taxes and Income Taxes in Australia. Here we break down everything you need to know about crypto taxes and how you can avoid notices, audits and penalties. We'll also explain how to calculate your crypto taxes, how to file on myTax, and tips on how to reduce your Australian tax bill.

This guide is regularly updated

Before we start, at Koinly we keep a very close eye on the ATO's crypto policies and regularly update this guide to keep you informed and tax-compliant.

01 Dec 2021: Tax rates 2021-2022 updated.
30 June 2021: Watch our Aussie Crypto Tax Guide here and on Youtube.
28 May 2021: The ATO issued a statement addressing crypto investors. Read it here.
13 May 2021: Guide updated for 2021.
22 June 2020: ATO warns 350,000 investors to disclose or face penalties.
24 July 2019: Welcome to your Australian cryptocurrency tax guide!

Yes, Cryptocurrency is taxed in Australia.

In Australia cryptocurrency is viewed as an asset and attracts Capital Gains Tax and Income Tax. With the ATO specifically targeting crypto, it’s essential that you understand the tax consequences of owning crypto. If you’ve bought, sold or earnt interest from cryptocurrency in the last financial year, you'll need to declare your crypto totals on your Income Tax Return.

Will the ATO know about your crypto?

Yes. If you have an account with an Australian cryptocurrency designated service providers (DSPs), then it's likely that the ATO already has your data.

  • The ATO has a data sharing program with all Australian exchanges.
  • The ATO knows has crypto transaction data from as far back as 2014.
  • The ATO has the Know your customer (KYC) information you provided when signing up for any Australian exchange or wallet.

In 2020 and 2021, hundreds of thousand Australian crypto investors were treated to a letter from the ATO warning that crypto was indeed taxable, and that failure to declare could result in penalties for tax evasion. In the 2021 nudge letter, recipients were given 28 days to disclose their crypto trades.

How Australia taxes Cryptocurrency

The Australian government does not see bitcoin and other cryptocurrencies as money nor foreign currency. Instead, the ATO classes crypto as property, and as an asset for Capital Gains Tax (CGT) purposes. Crypto can also be viewed and taxed as Income Tax. How you're taxed depends on your 'intentions' and setup.

Koinly Crypto Tax Guide Capital Asset

Investor or trader?

The ATO has different tax rules for individual investors, and for taxpayers who make a regular income from trading.

Similarly, the ATO views crypto users as either a trader, or an investor for tax purposes. The lines can get a little fuzzy. Read here for more advice from the ATO, but in general, the following is a good guide:

The ATO will tax Australian crypto trades based on whether you are an investor or a trader

Investor: An investor is just that - an individual investing in a future return. An investor buys and sells crypto as personal investment 'stock' with the goal of gradually building wealth over an extended period of time with profit made from long-term capital gains. Most Australian crypto users fall into this category and any profits gained will be subject to Capital Gains Tax. In some cases, Income Tax may also apply - depending on how the crypto was acquired.

Trader: A trader is active in crypto as a means to generate an income and is operating from a business setup. If you're running a crypto trading, forging or mining business, regularly buying and selling for short term gains, or running a crypto exchange, the ATO would tax you as a trader. Proceeds are taxed as Income.

Investors can access the 50% Capital Gains Tax Discount, whereas Traders can not.

Capital Gains Tax

A Capital Gains Tax (CGT) event occurs when you dispose of your cryptocurrency. Dispose means to sell, gift, trade, exchange, convert or use crypto to buy things. Importantly, if you hold for 1 year before disposing, you'll pay 50% less tax on crypto gains.

Koinly Crypto Tax Australia Guide

There are 4 ways you could pay capital gains tax on crypto in Australia:

  1. Sell crypto for fiat currency
  2. Swap crypto for crypto, including stablecoins
  3. Spend crypto on goods and services (if not seen as a personal use asset)
  4. Gift crypto

Capital Gains Tax Rate

If you’re buying crypto as an individual (investor), the percentage you’ll pay on Capital Gains Tax is the same as your income tax rate. Your income tax rate depends on your total income during the tax year.

ATO Individual Income Tax Rates 2021‚Äď222

IncomeTax Rate
$0 - $18,2000%
$18,201 - $45,000Nil + 19% of excess over 18,200
$45,001 - $120,000$5,092 + 32.5% of excess over 45,000
$120,001 - $180,000$29,467 + 37% of excess over 120,000
$180,001+$51,667 + 45% of excess over $180,000
Source ATO. The above rates do not include the Medicare levy of 2%

How to work out your Capital Gains Tax

A capital gain in crypto is the same in any class of asset - like a share. The gain is the difference in value from when you got your crypto, to when you sold it. You'll make a capital gain if the proceeds from the disposal is more than what it cost you, in total - known as the cost base.

The ATO provides the following guidance on how to calculate and report your crypto capital gains: to know how much you gained, or lost, you need to know your cost base. This is the purchase price of your crypto plus the costs related to acquiring or disposing of it, like transfer fees.

crypto cost price + fees = cost base

Gains: If you make a capital gain when you dispose of cryptocurrency, you’ll need to pay tax on some or all of that gain.

Koinly explains what is a crypto capital gain

EXAMPLE

Craig buys 1 ETH in Jan for $1,000 at a fee of $100. In May of the same year he sells his 1 ETH for $2,000 at a fee of $100. To buy his initial $1,000 worth of ether he paid a $100 fee. His cost base is thus $1,100.

In May of the same year he sells his 1 ETH for $2,000 at a fee of $100.

His capital gain is the new value of $2,000 less the cost base of $1,100, and the new fee of $100 to arrive at a proceed of $800. Craig's $800 gain will be taxed according to his Income Tax rate as Capital Gains Tax. If he waited to sell after a year had passed Craig could half his Capital Gains Tax - he'd pay only 50% of $800, using the Capital Gains Discount.

CAPITAL GAINS TAX

Crypto tax breaks

Australian taxpayers get a little breathing space with a number of tax-free thresholds and allowances that happily apply to cryptocurrency tax too.

Koinly Crypto Tax Australia

1. Tax free threshold: You will only start to pay Income Tax when your hit $18,200 in total income per year.

2. CGT Discount: If you hold your cryptocurrency for more than a year before selling or trading it, you may be entitled to a 50% CGT discount. And even if the market value of your cryptocurrency changes, you won't make a capital gain or loss until you actually dispose of your holdings.

3. Personal use asset: You can get an exemption from capital gains tax if you hold cryptocurrency as a personal use asset. If you purchase no more than AU$10000 of cryptocurrency to directly buy something else with crypto, that too over a short time period, you're eligible for this exemption.

When the crypto is acquired and held for some time before any such transactions are made, or if only a small portion of the crypto is used to make some transactions, it's unlikely that the crypto is a personal use asset. A cryptocurrency is unlikely to be a personal use asset in the following situations:

  • When you have to exchange the crypto to Austrian dollars or some other cryptocurrency to purchase the items for personal consumption, or
  • 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)

The time of disposal of the crypto is the key to working out if it's a personal use asset. The longer the crypto is held, it's unlikely to be a personal use asset ‚ÄĒ even if you ultimately use it to purchase items for personal consumption. This is because you have likely benefited from an increase in the value of the crypto during the holding period.

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.

Tax on crypto capital losses

If the proceeds from the disposal of your crypto is less than what you paid to acquire it initially, you'll see a loss. If you make a net capital loss then you can deduct the loss from any other class of asset gains, and even carry over the loss to future years.

Losses can offset gains made on crypto investments, share investments and even property investments. However, you can't deduct a net capital loss from your other income.

Tax on lost or stolen crypto?

If you lose your private key or your crypto is stolen, you may be able to claim a Capital Loss.

Australia crypto tax lost or stolen

To claim a Capital Loss, the ATO will require you to provide evidence such as:

  • The wallet address that the key belongs to
  • When you acquired the key and when you lost it
  • The cost of acquiring the stolen/lost cryptocurrency
  • The fact that the wallet was controlled by you
  • The amount of cryptocurrency at the time that you lost the key
  • That you possess the hardware where the wallet is stored
  • The transactions to the wallet from an exchange which is linked to your identity

Income Tax

There are cases where crypto is treated as income and thus attracts Income Tax, especially if the ATO views you as a trader, versus an investor.

Koinly Crypto Tax Australia Guide

As an Investor, 'traditionally' you're about the long game, the capital gains. You could earn income from crypto in in a number of ways, but it's easy to start 'acting' like a trader, so move with caution.

Three of ways that make sense from a 'labour' perspective is to earn crypto is by:

  • Getting your salary paid in crypto
  • Selling NFTs as an artist or as a dealer, gallery (but this would become business income)
  • Become a validator and earning through Proof of Stake or Proof by Mine.
    You're taxed differently if you're seen to be acquiring new mining tokens as a hobby miner, than as a commercial operation

There are also 'engage-to-earn' platforms that pay out crypto based on user behaviour:

  • Receiving Airdrops.
  • Referral rewards like Binance Referral.
  • Learn to earn campaigns, like Coinbase Learning Center, Coinmarket Cap Learning Center.
  • Watch to earn platforms like Odysee.
  • Browse to earn platforms like Permission.io browser extension, Brave.
  • Play to earn games like Axie Infinity.
  • Shop to earn through browser extensions like Lolli.
  • Share public address to earn on platforms like Moon Faucet.

DeFi - or decentralized finance - has opened a world of opportunities to use your own crypto to earn more crypto.

  • Earning interest through yield farming on lending protocol like AAVE, Compound.
  • Earning new liquidity pool tokens, governance or reward tokens on protocols like Uniswap.
  • Lending your crypto to platforms like NEXO to earn interest.
  • Earn crypto dividends on platforms like CoinRabbit.

Tax free crypto transactions

It's not all bad news. Certain crypto activities are tax-free in Australia. But a word of caution, some provisions are straightforward - like not having to pay tax when buying or holding crypto. Other seemingly tax-free transactions can quickly blur the lines, especially when it comes to DeFi transactions, or crossing the boundary from 'investor' to trader.

Koinly Crypto Tax Australia Guide

Broadly, here's when won't pay tax on crypto in Australia:

  • Buying crypto.
  • Holding crypto.
  • Acquiring crypto as a gift.
  • Acquiring crypto from hobby-level crypto mining.
  • Transferring crypto between you own wallets - but watch out for transfer fees.
  • Buying goods and services under $10,000, if it's a personal use asset.
  • Donating crypto to registered charities.

Tax on buying crypto

Do you pay tax when you buy crypto in Australia? According the ATO, it all depends on how you pay.

Buying cryptocurrency with fiat currency

You're not taxed when you buy cryptocurrency in Australia. Crypto is also GST-free.

However, keeping accurate records of the purchase is very important so that you can calculate the cost basis of the transaction when you decide to sell or 'dispose' of your crypto - as that is the moment when you will have to pay tax.

Koinly is not just a crypto tax calculator but a crypto portfolio tracker too - the perfect tool to keep a hold on your crypto purchase and sale dates.

TAX FREE

Buy and HODL

If your strategy is to simply buy and hold your crypto, then you don’t need to pay tax on your cryptocurrency you hodl, even if the value of your portfolio increases. The taxable event is when you sell, exchange or gift your crypto.

TAX FREE

Buying crypto with crypto

Buying, swapping or trading one crypto for another (ex. BTC ‚Üí XRP) is a taxable event in Australia. The ATO sees a trade as 2 separate transactions, first you are selling your BTC for X amount of fictional dollars, then you are buying ETH with these fictional dollars.

Even though you never received any dollars in hand, you still have to pay tax on the sale of the BTC.

The market value (in AUD) of the purchased coins is used to determine the capital gain. If the cryptocurrency that you received can't be valued, you will have to take into account the market value of the crypto you sold at the time of the transaction.

A stablecoin - like Dai, TrueUSD or Australia's AUDT, is simply a class of cryptocurrency that offers price stability. That's because stablecoins are backed by a reserve asset, usually a stable fiat currency like USD or AUD. As far as the ATO is concerned however, stablecoins like TrueUSD are exactly the same as any other cryptocurrency, and so the tax treatment - Capital Gains Tax - is the same as for regular crypto to crypto exchanges.

Let's say you purchased 1 BTC for $1,000 in July 2017.

In November 2017, you exchanged 0.5 BTC for 3 ETH. Let's imagine that at this time, the market value of 3 ETH was around $2,000.

This means your capital proceeds come to $2,000 and the cost of acquisition is $500. In other words, your capital gain would be $1,500.

CAPITAL GAINS TAX

Tax on selling crypto

If you're investing in crypto the day will surely come where you want to - or need to - cash out. How will the ATO snare you at this crucial moment? It all depends on your level of patience.

Selling crypto for fiat

According to the ATO, selling crypto for fiat currency, such as the Australian dollar, is a taxable event. Profit made from the sale of cryptocurrency attracts a 100% Capital Gains Tax in the first year, 50% in subsequent years.

EXAMPLE

Craig purchases 0.1 BTC in July 2017 for $1,000 and sells it in November 2017 for $2,000 Australian dollars. His total capital gain is thus $1,000.

CAPITAL GAINS TAX

Selling crypto for crypto

As with buying crypto with crypto, selling, swapping or trading one cryptocurrency for another is a taxable event too, and Capital Gains Tax applies.

This applies to stablecoins too. Selling a coin like ETH for a stablecoin like Dai is unfortunately seen as disposal, just the same way selling ETH for BTC is.

CAPITAL GAINS TAX

Moving crypto between wallets, exchanges and pools

Moving your own crypto around the metaverse should escape the ATO's attention in theory, but nothing is straightforward in the world of cryptotax. Let's explore a few scenarios.

Moving crypto between wallets

Moving crypto between different wallets that you own is not a taxable event and does not trigger Capital Gains Tax.

Having said that, it's important to keep track of these movements because automated crypto tax software like Koinly use these movements to calculate the cost basis of each movement.

EXAMPLE

Let's say Sam buys 4LTC for AU$1000 on Coinbase. She later moves the funds into her private LTC wallet. A few days later she transfers the LTC from her private wallet to her Binance account and sells it for $2,000, making a profit of $1,000.

If Sam wants to use Koinly to generate her crypto tax report, she will have to connect all three wallets. If she doesn't sync her private wallet but only syncs the Coinbase and Binance account, Koinly won't be able to identify that the funds she transferred into her Binance account are the same funds she purchased on Coinbase.

However, once Sam adds her private wallet address, Koinly can match the transfer by tracing it from Coinbase to her wallet and then from her wallet to Binance. This will help in producing an accurate tax report.

If she no longer has access to her private wallet, she will have to make some manual changes using the Koinly web interface. She will have to mark the transfer from Coinbase as Ignored so that Koinly doesn't realise gains on it and she doesn't have to pay taxes twice. She would then change the value of the incoming transaction to Binance to match the cost-basis of the outgoing transaction from Coinbase.

TAX FREE

Wallet fees

Moving your own crypto between wallets? No doubt you'll pay a transfer fee for network fee to do so.

If you're using cryptocurrency to pay that fee you’re technically spending the asset - which could is viewed as a disposal.

The ATO has taken an official position on this: If the transfer fee was paid using crypto then that triggers Capital Gains Tax. You would need to work out the capital gain or loss for the portion of your crypto that was used to pay the transfer fee. The cost basis for is the value of the fee amount at the time the fee was paid. See more on this from the ATO here and here.

TAX FREE / CAPITAL GAINS TAX

How are airdrops and forks taxed?

Airdrops and forks are the windfalls of the cryptocurrency world, but will you need to pay tax on new assets from drops and chain splits? Will it be classed and taxed as some sort of income? Or are airdrops and forks tax free?

Receiving an airdrop

An airdrop is a distribution of a cryptocurrency token or coin, usually for free, to numerous wallet addresses. Airdrops are primarily used as a way of gaining attention and new followers, resulting in a larger user-base and a wider distribution of coins.

The ATO has stated that any airdrops received are considered ordinary income at the fair market value of the tokens on the date you received them. Airdrops are akin to bonuses.

"The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived."

This applies to both participant and involuntary airdrops.

The dollar value of the airdropped coins or tokens is treated as assessable income at the time of the airdrop. So, if you’re sent $400 worth of tokens in an airdrop, you need to report that as taxable income.

EXAMPLE
You receive 300 1INCH tokens from an airdrop. On the day you receive them, the fair market value per token is $3.5. Your tokens are subject to Income Tax, so you need to calculate their total worth.

$3.5 x 300 = $1,050. You report $1,050 of income on your Individual Tax Return Form.

INCOME TAX

Selling or trading your Airdropped coins

If you sell, swap, spend or gift your airdropped coins or tokens, the disposal is treated as a normal capital gains event.

The cost basis here is the value of the coins when they were first airdropped to you.

You sell your 300 airdropped 1INCH tokens a couple of days after. The fair market value per token is $4, so you make $1,200. You can use the calculation above as your cost basis.

$1,200 - $1,050 = $150. You report a capital gain of $150 on your Individual Tax Return Form.

CAPITAL GAINS TAX

Receiving fork assets

The ATO has two rules for hard forks and it depends on whether you’re an investor or running a cryptocurrency business. If it’s the latter, you’ll need to follow trading stock tax rules, not crypto tax rules.

If you’re an investor, you won’t pay Income Tax on any new coins received as a result of a hard fork. The cost basis for new coins from a hard fork is zero.

The ATO offers more detail on fork scenarios here.

TAX FREE

Selling fork assets

The ATO is very clear that the cost basis for new coins from a hard fork is zero, so you’ll pay Capital Gains Tax on the total value of your coin as it’s all seen as profit.

One of the ways you can reduce this taxation is to HODL. Australian investors who hold assets for longer than a year enjoy a 50% long-term Capital Gains Tax discount when they sell, swap, spend or gift them. This discount would apply to coins received from a fork, just as it would to any other crypto asset held for more than a year.

EXAMPLE

You received 1 BCH in 2017 when it split from BTC. Your cost basis for this new coin is $0. You sell it a couple of months later at its peak for $2,000. Because your cost basis is zero - the whole $2,000 is viewed as profit by the ATO and subject to Capital Gains Tax.

CAPITAL GAINS TAX

Token address change / mainnet launch

When a cryptocurrency changes its underlying tech for ex. when EOS went from the ETH blockchain to the EOS mainnet or when DAI changed its contract address and named the old coin SAI - there are no tax liabilities.

Note that if your old coins continue to hold value even after the new ones have been issued then the ATO may consider this as a fork and not a swap - this may give rise to a Capital Gains Tax event.

TAX FREE

Tax on crypto gift and donations

Gifts and donations are tools often used in tax minimisation, but will it work for crypto tax in Australia? Here's what the ATO has to say about how crypto donations and gifts are taxed.

Giving a crypto gift

This is going to hurt. Whether your reason for gifting your crypto is altruistic or opportunistic, the ATO cares not and will happily ask you to pay Capital Gains Tax on the disposal.

Koinly Crypto Tax Australia Guide

CAPITAL GAINS TAX

Receiving crypto as a gift

If someone gives you crypto as a gift, consider yourself lucky for two reasons. You've just scored some crypto and you don't pay any tax.

Receiving crypto as a gift is not a taxable event. But, you will need to keep a record of the fair market value of the crypto on the day you received it. This will become your cost basis and you'll need this to calculate a potential gain or loss, should you decide to sell, or even re-gift your crypto gift.

TAX FREE

Selling your crypto gift

The bad news is back. While the receiving of a crypto gift is tax free, the disposal - be it by selling, swapping, spending, or re-gifting, is taxed as Capital Gains Tax.

Your cost basis will be the fair market value of the coins on the day you received them.

CAPITAL GAINS TAX

Donating crypto

In Australia crypto donations work the same as regular donations - they're tax deductible if you're donating to a registered charity.

You can claim the donated amount, calculated as the dollar price of the cryptocurrency at the time it’s donated) as a deduction on your tax return.

TAX FREE

Tax on mining crypto

Mining bitcoin in Australia? The ATO will tax your mining activities based on whether you're a hobby miner, or a trader. The lines can get blurry - In order to determine whether you are mining crypto as a business, check out this section of ATO's website.

Mining as a hobby

A hobby miner is someone who participates in cryptocurrency mining as an interest or pastime and not in a business-like manner seeking commercial profits. Their investment in mining tech will be relatively insignificant - a small scale operation at home - and intention to accumulate the rewarded coins rather than sell immediately to turn a profit.

Rewarded coins are not income but rather a capital acquisition.

The mined coins will be subject to capital gains tax on disposal. No expense deductions are allowable. It's also important to remember that personal use asset exemption rules don't apply to the capital gains made on disposal of mined cryptocurrency.

TAX FREE

Mining as a business

A person conducting their mining in a large scale business operation is a commercial miner. If you’ve invested extensively in equipment and are operating out of a dedicated space such as a data centre, then you’re in the business of mining. You may also be in the business of mining rather than accumulating the rewarded coins, you continually sell for an immediate profit.

Any proceeds you receive from a mining pool/service or your own mining rig are taxed as ordinary income and will need to be declared on your Income Tax return.

In order to determine whether you are mining crypto as a business, or at a hobby-level, check out this section of ATO's website

INCOME TAX

Selling mined coins

When you eventually sell your mined coins, you will still be subject to capital gains tax on the difference between the value you declared as Income and the value at the time of the sale.

CAPITAL GAINS TAX

DeFi crypto taxes Australia

DeFi - or decentralized finance - has opened a world of opportunities to use your own crypto to earn more crypto.

  • Earning interest through yield farming on lending protocol like AAVE, Compound.
  • Earning new liquidity pool tokens, governance or reward tokens on protocols like Uniswap.
  • Lending your crypto to platforms like NEXO to earn interest.
  • Earn crypto dividends on platforms like CoinRabbit.

Margin trading

Margin trading with crypto involves borrowing funds from an exchange to carry out your trades and then repaying the loan later. There is usually some interest involved as well.

There is currently no guidance on how this is taxed however it is important to note that there is a clear difference between margin trading and trading with futures, so the rules that apply to futures trading/speculation may not apply to margin trades.

On a futures trade you are speculating on the rise/fall of a coin, on a margin trade you are borrowing funds to carry out some trades. Most exchanges have different platforms for both, for ex. Binance allows margin trading on spot markets, whereas you have to trade on a completely different platform if you want to do futures as well - Binance Futures.

Taking this into consideration, the conservative approach is to simply treat borrowed funds as your own investments and pay CGT on the repayment of the loan (since this would be deemed a disposal).

CAPITAL GAINS TAX

Participating in an ICO / IEO

ICOs (Initial Coin Offerings) or IEOs (Initial Exchange Offerings) refer to a situation where investors can purchase tokens/coins in a yet-to-be-released cryptocurrency/company. This purchase usually happens via an existing cryptocurrency likes Bitcoin or Ethereum.

From the ATO's perspective, this amounts to a crypto-to-crypto trade. The taxable event is triggered on the date of the ICO transaction, when you receive the new tokens. When you sell the new tokens at a later date, the cost base of that transaction will be the value of the cryptocurrency that you paid for it on the date of the ICO/IEO.

CAPITAL GAINS TAX

Interest from DeFi / Lending / Staking / Masternodes

Lending your cryptocurrency and getting interest on the same generates taxable income. This is similar to mining coins and is subject to similar rules. You have to declare it on your Income tax statement as additional ordinary income.

Staking rewards are like dividends.

DeFi interest is like bank account interest.

INCOME TAX

Futures / contracts / options trading with crypto

In futures trading, you are not actually buying or selling any crypto. Instead you are speculating on the rise or fall of the price of a crypto asset in the future. When the future arrives you will either make a profit or a loss (P&L).

There is no guidance from the ATO on how this P&L should be taxed but there are 2 possible tax categories that this can fall into:

Note: If you are using Koinly to calculate your taxes then you can control how the P&L is taxed on the Settings page.

CAPITAL GAINS OR INCOME TAX

Signup & Referral bonuses

Any crypto you get in return for signing up or referring users to a service is taxed as Income. Referral bonuses are akin to the concept of commission.

INCOME TAX

Getting paid in Bitcoins

Whether you are freelancing or working for a company that pays employees in crypto, you can't escape income tax.

Any coins received as income are taxed at market value at the time you received them so make sure you declare this income on your annual tax return or you might end up facing the taxhammer.

INCOME TAX

Spending crypto

Paying for goods and services not intended for personal use and/or priced over AUD$10,000 and/or paid with long-held crypto.

The Personal Use Asset rule can apply to crypto but under very strict conditions.

Assets disposed of to buy personal goods valued under $10,000 are CGT-free crypto is used to pay for goods, the disposal will attract capital gains tax when:

1. The item value is over AUD $10,000, or

2. Goods are bought for business use, or as an investment, (so not for personal use)

3. Goods are bought with crypto held for a long period of time and/or initially bought for investment purposes. According to the ATO, the longer you hold a cryptocurrency, the less likely it is to be a personal use asset.

EXAMPLE

Jasmine has been regularly keeping cryptocurrency for over six months with the intention of selling at a favourable exchange rate. She has decided to buy pay for new furniture with some of her cryptocurrency. Because Jasmine used the cryptocurrency as an investment initially, the cryptocurrency - and its disposal - is not a personal use asset.

CAPITAL GAINS TAX

Paying for personal stuff less than AUD $10,000

While most assets attract capital gains tax in Australia, goods bought for personal use, such as clothes, are classed as personal use assets. Personal use assets do not attract capital gains tax. So, how does this personal use asset exemption apply to purchases paid for in crypto?

Ordinarily, when you pay with crypto, this is seems as a 'disposal' - and that equals capital gains tax. However, capital gains tax may not apply to goods paid for in crypto when:

1. The item bought is for personal use (not for business, nor as an investment.) Ex. Clothes, airline tickets, sporting equipment.

2. The cryptocurrency used to pay is acquired and used within a short period of time

3. The item bought is priced under AUD $10,000.

EXAMPLE

Steve needs a new hoodie. His favourite store offers discounted prices for payments made in cryptocurrency. Steve pays $120 to acquire cryptocurrency and uses the cryptocurrency to pay for the hoodie on the same day. Under the circumstances in which Steve acquired and used the crypto, the cryptocurrency is a personal use asset, and thus does not attract capital gains tax.

TAX FREE

Business and trader taxes

Buying and selling crypto as a business

If you are a trader and you hold crypto for sale or exchange in the ordinary course of your business the trading stock rules apply, and not the CGT rules. This means the crypto you buy and sell is viewed as stock - as in, stock take.

Profit from the sale of cryptocurrency held as trading stock in a business is ordinary income. The cost of acquiring cryptocurrency held as trading stock is deductible as a business tax deduction.

Examples of businesses that involve cryptocurrency include cryptocurrency trading businesses, cryptocurrency mining businesses, cryptocurrency exchange businesses (including ATMs).

EXAMPLE

Jake runs a crypto trading business. On 15 November 2017, he buys 1,500 bitcoin for $150,000. On the same day, he sells 1,000 bitcoin for $200,000. As Jake holds the cryptocurrency for sale or exchange in the ordinary course of his business, Jake can claim a deduction for $150,000 for the acquisition of his bitcoin and declares income of $200,000 for the later sale of his bitcoin.

INCOME TAX

You need to keep records

The ATO requires you to¬†keep detailed records of cryptocurrency transactions¬†for¬†5 years¬†after you 'prepared or obtained the records', or ‚Äúcompleted the transactions or acts those records relate to‚ÄĚ, whichever is later.

The ATO recommends using an Australian tax-compliant app like Koinly for record keeping.

"You can use an accountant or third-party software to help meet your record-keeping obligations and working out your tax."

How to report your crypto tax activity?

The ATO wants to know about your crypto activity in terms of income and capital gains. You'll need to declare both in your Annual Tax Return, in the same way you need to report your regular income, gains and losses.

How to use a crypto tax app like Koinly

Don't get stuck in the busywork. Don't get it wrong. Don't rely on your accountant to know where to look. Use Koinly to generate crypto tax reports. Here's how easy it is:

  1. Sign up for a FREE account.
  2. Select your base country (Australia) and currency (Australian dollars).
  3. Connect Koinly to your wallets and exchanges. Koinly integrates with Binance, CoinSpot, CoinJar, Kraken, Swyftx, and 300+ more. (See all)
  4. Let Koinly crunch the numbers. Make a coffee.
  5. Ta-da! Your data is collected and your full tax report is generated! See a sample report for Australian tax payers.
  6. To download your crypto tax report, upgrade to a paid plan from $49 per year.
  7. Send your report to your accountant, or complete your ATO submission yourself, using the figures from your Koinly report.

Tax deadline

The Australian tax year runs from July 1 - June 30 the following year. If you are lodging your own tax return for July 1, 2020 ‚Äď June 30, 2021, it needs to be filed by October 31, 2021. Lodging through an accountant? You have until March 31 2022 to file.

Accounting method used

As an investor you can use either FIFO, HIFO or LIFO to calculate capital gains, as long as you can individually identify your cryptocurrency assets.

As a trader, the ATO requires you to use FIFO when calculating your crypto income tax. Trader's work under income tax for business rules, not capital gains. This means your cryptocurrency is your trading stock, and you need to follow the rules for valuing trading stock.

When Koinly calculates your crypto taxes for you it will use FIFO as a default - but this ATO-friendly setting can be changed manually.

Filing with myTax

Once you, or your accountant have calculated your crypto tax totals (we have an app for that!), the easiest way to file your taxes in Australia is online using myTax, available from your myGov dashboard.

Start from your myTax account, available from your myGov dashboard.

  1. From your myGov dashboard
  2. Select ATO myTax (you need to have previously linked your ATO profile to myGov. See steps here.)
  3. From your myTax dashboard select Tax from the top navigation.
  4. Here you’ll see any upcoming lodgements, as well as your previous lodgements and refunds. Select this year’s income return.
  5. Follow steps 1 and 2 to enter or update your personal contact details and those of your banks and other financial institutions.
  6. Before you enter your crypto totals for the year, you need to Personalise Your 2019-2020 Return at step 3.
  7. Here you'll make the selections that apply to you, so that those sections can be included in your tax return form. These will about capital gains, income and deductions.
  8. To be able to include your crypto capital gains in your return, select this option: ‚ÄėYou had¬†Australian interest, or other Australian income or losses from investments or property‚Äô.
    From its drop down options, select Capital gains or losses that are not from a managed fund. This will apply to the majority of the  crypto community, who are seen as investors by the ATO.
  9. Next, you need to make a selection around income...
  10.  Don't forget to select the deductions box -You had other income not listed above.
  11. Pick Other deductions - this is where you’ll enter relevant costs, like your Koinly plan.  
    Once you've personalised your return, it's on to step 4: Prepare return.
  12. Right, so let’s look at Capital Gains Tax first: You’ll find your capital gains summary on the first page of your Koinly report. 
  13. Copy the Net capital gains amount from the report into this column
  14. If you made a profit then you might be eligible for a long term discount on assets held over 12 months, Koinly shows the discounted amount here. Subtract this from the Net capital gain field. If you had other losses in previous years, subtract those too.
  15. Report the total amount under the 18H ‚ÄėCurrent year capital gains‚Äô label on your tax return.¬†
  16. If you’ve had your crypto for more than 12 months, you may be eligible to discount your capital gain by 50% or establish what indexation factor you can apply against your capital gain. 
  17. If you’ve owned your crypto for less than 12 months, you must use the other method, where you simply subtract your cost base from your sale price.
  18. This final amount is reported at the 18A ‚ÄėNET capital gain‚Äô label. Tax is then applied to your total assessable income (which includes things like wage and interest income) at standard marginal rates.
  19. Now, you might have earned some income from your crypto in the last financial year. You’ll find those totals in the Income summary of your Koinly report. Here is an example of some income earned through an Airdrop.

Filing with printable forms

You also have the option of declaring your crypto activity on paper and returning the forms by mail. You'll need 2 forms, one for income, and one for capital gains.

Crypto income is declared on question 2 of Tax return for individuals 2020 (NAT 2541).

Question 2 relates to income other than ordinary salary or wages

Crypto Capital Gains: You'll need to select YES on question 1 of the Taxpayer's Declaration on your Tax return for individuals 2020 form (the form used for income tax).

Tick Yes if you traded Crypto in the past tax year

Next, complete question 18 of the Individual tax return instructions supplement 2020 Tax return for individuals (supplementary section) 2020 (NAT 2679).

  1. If you made a¬†gain: Report the total amount under the 18H ‚ÄėCurrent year capital gains‚Äô label on your tax return.¬†
  2. If you made a loss: Enter your total capital loss in the 18V ‚ÄėNET capital losses carried forward to later income years‚Äô label.
  3. This final amount is reported at the 18A ‚ÄėNET capital gain‚Äô label
  4. If your total gains, or losses are greater than $10,0000 you should complete Capital gains tax (CGT) schedule.

Crypto gains and losses are detailed on a supplementary form, at question 18.

As an investor, will you pay capital gains tax if you've already paid Income Tax?

Yes, you do! If you've made income from crypto as an investor (so not as a business) and then sell your newly gained crypto, there are 2 taxable events at play. First, income tax is paid on the coins you received. Then capital gains tax is paid on the profit or loss when you sell, or 'dispose' of these coins.

If you receive an airdrop of 1 XRP (worth $1500) and later sell it for $2000, you would have to pay Income tax on $1500 and a capital gains tax on the $500 profit.

Minimising Your Tax Liability

Deducting Cryptocurrency Losses & Trading Fees

The first step towards minimising your tax liability is figuring out what losses and expenses you can offset against your taxable income. In order to do this, you first need to figure out whether you will be classified as someone who holds crypto as an investment or whether you're carrying on a crypto trading business.

Crypto trading or cryptocurrency used in business

If you're running a crypto business - be it mining, trading or exchanging, you can claim a tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income. Provided that you pass the ATO's non-commercial losses rules - which means that you're running a legitimate business.

If you hold cryptocurrency for sale or exchange in the ordinary course of your business the trading stock rules apply, and not the CGT rules. Gains from the sale of cryptocurrency held as trading stock in a business are ordinary income, and the cost of acquiring cryptocurrency held as trading stock is deductible.

Also keep in mind, that the crypto you own at the end of the year is your trading stock and you have to declare its value as part of your assessable income. Check out 'simplified trading stock rules' if your turnover is under $10 million. Interestingly, you can declare the value of your crypto stock at either cost, market or replacement value, which gives you some flexibility in terms of tax planning.

Buying crypto only to pay for something else / Personal use asset

You can get an exemption from capital gains tax if you hold cryptocurrency as a personal use asset. If you purchase no more than AU$10000 of cryptocurrency to directly buy something else with crypto, that too over a short time period, you're eligible for this exemption.

When the crypto is acquired and held for some time before any such transactions are made, or if only a small portion of the crypto is used to make some transactions, it's unlikely that the crypto is a personal use asset. A cryptocurrency is unlikely to be a personal use asset in the following situations:

  • When you have to exchange the crypto to Austrian dollars or some other cryptocurrency to purchase the items for personal consumption, or
  • 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)

The time of disposal of the crypto is the key to working out if it's a personal use asset. The longer the crypto is held, it's unlikely to be a personal use asset ‚ÄĒ even if you ultimately use it to purchase items for personal consumption. This is because you have likely benefited from an increase in the value of the crypto during the holding period.

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.

Deducting cryptocurrency mining expenses

This depends on whether you undertake mining as a business or a hobby; this can be done by looking through the Are-you-in-business section on the ATO website.

Koinly Plan

The cost of your Koinly plan can be listed as a business expense. This would go under 'other expenses'.

Calculating your crypto taxes (example)

Let's look at how capital gains are calculated by way of an example.

  1. Jed bought 1 BTC for $1000 on 1st July 2020.
  2. He traded it for 20 ETH on 5th July 2020. The market value of 20 ETH at this point was $1500.
  3. He also received 0.15 ETH (worth $10) from Coinbase as a signup bonus.

To calculate the crypto taxes for Jed we are going to use Koinly which is a free online crypto tax calculator.

After entering the 3 transactions into Koinly manually, this is the output:

Koinly cryptocurrency calculation example

We can see the gain/loss on each transaction clearly. Navigating to the Tax Reports page also shows us the total capital gains.

As you can see, Jed will have a taxable capital gain of $500 along with taxable income of $10 from cryptocurrencies.

The good thing about crypto tax software is that whether you have 10 transactions or 10,000 - it is equally easy to generate your tax reports! You can sign up for a free Koinly account and view your capital gains in a matter of minutes.

Who can help you calculate your crypto tax?

Crypto tax reporting is fairly new, and a road less travelled for most accountants. That doesn't mean the ATO is going to cut you any slack. Here are 3 ways you can tackle your crypto taxes and keep in the taxman's good books. We'll start with the easiest and most accurate method first.

  1. Use crypto tax software like Koinly to create a crypto tax report of crypto activity, in a template that fits your country's tax regulations. Send the report to your accountant to complete your tax return for you. This is smart move especially if you have DeFi earnings to consider.
  2. Use a crypto tax calculator like Koinly to create a crypto tax report of crypto activity. Add the necessary data from your Koinly crypto tax report to your tax return and file it yourself online with myTax.
  3. Get your accountant to work out your crypto activity by supplying transaction histories, statements and potentially historic cryptocurrency-to-AUD conversions. Let them work it out and the file for you. Be warned - this will be a lengthy and expensive exercise.

For tips on what to look for in a crypto accountant, follow our 5 step screening process.

Bonus: Use cryptocurrency tax software to automate your reports

Filing with your Koinly report

Ready to share your 2020-21 crypto journey with the ATO? Whether you're filing yourself via myTax or printed forms, or handing the job over to your accountant, you'll need to start by downloading your crypto activity summary from Koinly.

While the task of preparing your crypto taxes can seem quite daunting - especially if you traded on multiple exchanges - there are tools like Koinly which can make your life really easy.Here's how it works:

1. Connect your exchanges and wallets

Most exchanges have API's that can allow Koinly to download your transaction history automatically. You can also import CSV or excel files with your transaction history if you prefer that (or if your exchange does not have an API).

Once imported you'll have a clear overview of your trades and can use Koinly as a portfolio tracker.

Link your cryptocurrency wallets and exchanges to your Koinly account

2. Ensure your account settings are correct for Australia.

Your base currency should be AUD. The pre-selected cost-basis method is FIFO, which is correct and as per the ATO's requirements. Note: Investors can use either FIFO or LIFO.

Set your Koinly account to be ATO compliant

3. Head over to the Reports page.

Select the date range you need to file for. The Australian tax year runs from July 01 to June 31 of the following year.

Koinly does a number of things under the hood in order to calculate your capital gains and income. First it fetches the market rates at the time of your trades, then it matches transfers between your wallets and exchange accounts and finally it calculates your capital gains.

The Australian Financial year runs from July 01 to June 30 of the following year

4. Select and download your report

Koinly offers many downloadable tax reports. For Australia, the report you need to download is called 'ATO report (myTax)'.

Koinly's ATO Report (myTax) provide crypto tax history for Australian income tax return

Your report will download as a PDF and will contain (sample report here)

1. Capital gains summary

2. Income summary

3. Asset Summary

4. End of Year Balances

5. Capital Gains Transactions

6. Income Transactions

7. Gifts, donations & lost assets

8. Expenses

9. Data sources

With your summaries calculated, it's time to share your data with the ATO.

Koinly Crypto tax report for Australian's following ATO guidelines

Look out for nudge letters

28 May 2021 - The ATO issued a reminder to Australian crypto investors to report all gains on their tax return. Approximately 100,000 taxpayers will receive a warning letter outlining their obligations and asking them to review their previously lodged returns. A further 300,000 people are expected to be prompted by pop-ups, as they lodge their 2021 tax return on myTAX.

To determine tax liability, the ATO is collecting data from crypto exchanges and comparing it to amounts entered on previous tax returns.

Failure to declare crypto gains can attract a penalty of 75% of the outstanding tax liability, plus the tax itself and interest on the shortfall. Read the full press release here.

Share:

Recevez nos articles

Recevez des nouvelles de notre part chaque semaine.