Guides

Guide: Cryptocurrency Tax in Australia (ATO) - 2020

Updated on November 29, 2019

In its guidelines on crypto taxes, the Australian Taxation Office (ATO) defines cryptocurrencies as "Bitcoin, or other crypto or digital currencies that have similar characteristics as Bitcoin". In this guide we will look at how various transactions involving cryptocurrencies are taxed in Australia

Cryptocurrency disposals & capital gains tax

Any disposal of crypto is subject to Capital Gains Tax. Disposal here includes:

  • Selling or even gifting cryptocurrency
  • Trading cryptocurrency (wherein you sell one cryptocurrency and purchase another)
  • Converting cryptocurrency into fiat currency like Australian dollars
  • Purchasing goods and services with cryptocurrency

Once you've calculated the capital gain amount, you can figure out the tax owed by referring to your marginal income tax rate. Capital gains in Australia are taxed at the same rate as the marginal income tax rate.

EXAMPLE

James purchases 0.1 Bitcoin for AU$1200. 2 months later he sells it for AU$1500.

His capital gains on the transaction are AU$300, and he has to pay tax on this amount, based on his taxable income and marginal income tax rate. So let's say his income for the year (including capital gain amount) is between $18,201 – $37,000, he will have to pay tax at the rate of 19% on his capital gains, so his total tax will come to AU$57.

Tax on cryptocurrency used in business

If, on the other hand, you are carrying on a business that involves cryptocurrency transactions, CGT rules don't apply. The trading stock rules will apply instead. In this case, the proceeds from the sale of cryptocurrency held as trading stock in business will come under ordinary income. Plus, the cost of acquiring such cryptocurrency will be a deductible expense. Examples of such businesses are:

  • Cryptocurrency mining businesses
  • Cryptocurrency trading businesses
  • Cryptocurrency exchange businesses (This includes not just online exchanges but ATMs as well).

Calculating the cost basis of a transaction

The process for calculating capital gains is fairly straightforward. It's simply the difference between the price at which you disposed of the crypto minus the price at which you purchased it. If you didn't actually purchase the crypto but received it in lieu of salary or as a reward for mining, then the purchase price will be the fair value of the crypto on the day you received it.

It's also important to remember that you need to keep a record of every crypto transaction for at least 5 years after it occurred. Sometimes, it can be very hard to find accurate records, especially as most traders have conducted numerous transactions over the years. If that's the case, you might have to turn to crypto tax software to help you with these records.

The purchase price is the best way to calculate the cost of the cryptocurrency. However, when specific identification of the crypto being sold is not possible (which can happen quite often during crypto trades), the taxpayer needs to decide whether to use the FIFO (First In First Out) or the LIFO (Last In First Out) principle. While there is no explicit clarity on which method is preferred by the ATO, most experts recommend FIFO.

EXAMPLE

Say you purchase 1 BTC in January 2017 for AU$1000 and 1BTC in June 2017 for AU$2800. Then you sell 1 BTC in August 2017 for $4000. Under the FIFO method, your cost of purchase would be AU$1000, while under LIFO it would come to $2800. So in the first case, your capital gains would be AU$3000, while in the second case they would come to AU$1200.

Buying cryptocurrency (eg. AUD → BTC)

Like in most parts of the world, there are no taxes on buying or hodling cryptocurrencies in Australia. 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 dispose of the crypto.

Selling cryptocurrency (eg. BTC → AUD)

This is a taxable event. As mentioned, selling crypto for fiat currency is subject to capital gains tax. If your crypto wallet contains different types of cryptocurrencies, each type will be seen as a separate CGT (Capital Gains Tax) asset.

EXAMPLE

Craig purchases 0.1 Bitcoin in July 2017 for AU$1200 and sells it in November 2017 for AU$2100. His total capital gain is AU$900. This would get added to his taxable income and he would be taxed as per his marginal income tax rate.

Trading one cryptocurrency for another (eg. BTC → ETH)

The ATO has fairly explicit guidelines when it comes to trading one cryptocurrency for another. Exchanging one cryptocurrency for another is considered as disposal of one CGT asset and acquisition of another. It simply means you are receiving property instead of money upon selling your cryptocurrency.

The market value of the crypto you receive will be taken as the sales price. 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.

EXAMPLE

Let's say you purchased 0.1 Bitcoin for AU$1200 in July 2017. In November 2017, you exchanged 0.05 Bitcoin for 2.3 Ether. At this time, the market value of 2.3 ether was around AU$2000. This means your capital proceeds come to AU$3000 and the cost of acquisition is AU$600. In other words, your capital gains would be $2400. This would be added to your taxable income and you would be taxed as per your marginal income tax rate.

Cryptocurrency to Stablecoins (ex. BTC → TUSD or TUSD → BTC)

A stablecoin is simply a class of cryptocurrencies that offers price stability by being backed by a reserve asset, usually a stable fiat currency like USD. As far as the ATO is concerned, stablecoins like TrueUSD are exactly the same as any other cryptocurrency, and so the tax treatment is the same as for regular crypto to crypto exchange.

Paying for goods or services with cryptocurrency

Purchasing goods or services with cryptocurrency is subject to the same tax treatment as selling crypto. This means that the market value of the crypto that you use to pay for something will be counted as the sales proceeds while calculating the capital gains. So whether you pay bills using crypto through PaidByCoins or use BTC, ETH etc to pay for meals or coffee, these are all taxable events.

Moving crypto between your own wallets/accounts

Moving crypto between different wallets or accounts is not a taxable event and doesn't 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 keep track of your cost-basis.

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 AU$2000, making a profit of AU$1000.

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 realize 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 on cryptocurrency Margin Trading

Margin trading or trading with futures/CFD contracts using cryptocurrency doesn't have any special tax treatment. However, you can think of it as taking a loan from a bank to invest in property. When you make any gains/losses on selling the property, it will be classified as capital gains that needs to be declared. In margin trades, selling happens when you close a position. The gains realized at this point will be declared in the same way as regular trades. If you pay any interest on your margin trades, you can claim it as a deduction. If you pay interest using crypto, that transaction will also be subject to capital gains.

It's also important to keep in mind that most exchanges will sell your collateral if the value of your borrowed funds becomes lower than that of your collateral. This kind of sale will also trigger capital gains tax.

Tax on Income from Mining / Staking

Income from mining cryptocurrency has to be reported as part of your taxable income. However, the taxation will be different depending on whether you're mining as a hobby or are operating a crypto mining business. In order to determine whether you are mining crypto as a business, check out this section of ATO's website.

If you're in the business of mining

  • You must report your mining income to the ATO in Australian dollars. You can use the market value of the bitcoin in Australian dollars as published by any reputable exchange on the date of the transaction.
  • Any income you derive from transferring the mined bitcoin to a third party will also be included in your taxable income.
  • Certain expenses incurred with respect to the mining activity will be deductible. THis includes depreciation of hardware and software as well as electricity costs.
  • You may also be able to apply the small business instant asset write-off to the cost of capital assets.
  • Any crypto that you acquire from mining/staking is treated as trading stock. When you dispose of the trading stock, the proceeds are added to your taxable income. Even if you don't sell it, the difference between your trading stock value at the end of the year and the beginning of the year represents your taxable income.
  • You can offset your losses from mining against your other taxable income, subject to the provisions for non-commercial losses.
  • The net income (income less deductions) will be included in your taxable income and you will pay tax on this income at the marginal income tax rate. For more details on the tax rate, check this out.

If mining is a hobby

In this case, the crypto you mined will be considered as an asset and you will have to pay a Capital Gains Tax (CGT) when you dispose of the crypto. In this case, the cost basis of the crypto would be considered as zero. No deductions would be allowable.

Tax on Chain splits / Forks

A chain split, also known as a hard fork refers to a situation where an existing blockchain diverges into two or more competing versions. Here again, the tax treatment will differ based on the nature of your crypto holdings:

Holding crypto as an investment

If you are a hobbyist and are holding crypto as an investment, and you receive new cryptocurrency after a chain split, there is no ordinary income or capital gains that is incurred at the time that you receive the new crypto.

You will only trigger capital gains tax when you dispose of the cryptocurrency. Here, the cost basis of the new cryptocurrency that you received after a chain split is zero. You may be entitled to the CGT discount if you've held the crypto for 12 months or more.

EXAMPLE

Jason held 10 Bitcoin on August 2017 as an investment. When Bitcoin Cash split from Bitcoin, he held 10 Bitcoin and 10 Bitcoin Cash. At this stage, he doesn't derive any ordinary income or incur any capital gains tax.

In June 2018, Alex sells the 10 Bitcoin Cash for $4000. At this time, his total capital gains is $4000 (since the cost base of the Bitcoin Cash was zero).

Cryptocurrency held in a business

If you receive crypto as a result of a chain split in relation to cryptocurrency held in your business, it will be treated as trading stock. In this case, you need to account for its value while calculating your taxable income for the year.

Tax on ICOs / IEOs

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 by paying for it in existing cryptocurrency likes Bitcoin or Ethereum. So from a taxation perspective, this amounts to a crypto-to-crypto trade. So 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.

How Gifts and Donations are Taxed

When You Send Cryptocurrency as a Gift

For the ATO, gifting crypto is exactly the same as selling it, so it is a taxable event and you need to pay capital gains tax. The sales proceeds would be the fair market value of the crypto on the date when the gift was made.

When You Receive Cryptocurrency as a Gift

You don't have to pay taxes when you receive the cryptocurrency as a gift. However, you will be subject to capital gains tax at the time of disposal. In order to calculate the cost basis of the crypto, you can use the market value substitution rule , which means the cost basis will be the market value of the asset at the time you received it.

EXAMPLE

Samantha is an Australian resident who received crypto worth AU$1500 in July 2017 as a gift from her mother. She sold them in April 2018 for AU$3500. So her capital gain is $2000. Let's say her income for the year (including the capital gain amount) is between AU$370001-87000. As per the marginal income tax rate, she will have to pay 32.5% tax on the profit which is AU$650.

If she would have sold the crypto for the same amount after 12 months (say in August 2018), she would have been eligible for 50% CGT discount and would have had to pay only AU$325 as capital gains tax.

How Cryptocurrency Loans are Taxed

Lending your cryptocurrency in return for interest

Lending your cryptocurrency and getting interest on the same generates taxable income. This is similar to mining coins and is subject to similar rules. The taxable income will depend on whether crypto lending is a hobby or a business. See the income from mining section for more details.

Borrowing fiat currency against your crypto

As of now, borrowing fiat currency against crypto is not considered a taxable income. At the same time, your collateral may get liquidated by the loan platform if it falls below a specific value. This liquidation would be a taxable event and trigger capital gains tax.

Minimizing Your Tax Liability

Deducting Cryptocurrency Losses & Trading Fees

The first step towards minimizing 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.

Holding crypto as an investment

If you're not a professional trader and are simply holding some cryptocurrency as an investment, you will have to pay capital gains tax on disposal of the cryptocurrency. If you have a net capital loss, you can use it to offset a capital gain that you make in subsequent years. You cannot deduct capital losses from your other income.

EXAMPLE

Emmy is a long-term investor in shares and has a balanced portfolio of high and low risk investments. On the basis of advice from his wealth manager, Emmy recently decided to invest in a basket of cryptocurrencies which now form a part of her overall portfolio. If Emmy sells some cryptocurrency at a net loss, this loss can only be offset against any other capital gains made this year or subsequent years. She cannot offset this loss against other income.

Crypto trading or cryptocurrency used in business

In this case, you can completely offset your crypto losses against your income, as long as you pass the non-commercial losses rules. Also keep in mind, that the crypto you own at the end of the year is your trading stock and you have to declare it's value as part of your assessable income. Interestingly, you can declare this either at cost or market value, which gives you some flexibility in terms of tax planning.

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 — 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.

Capital Gains Discount‍

If you have held your crypto for more than 12 months before disposal, you can use the Capital Gain Tax Discount. For starters, simply calculate your capital gain by deducting the cost basis (including fees) from the capital proceeds and then deduct any capital losses. When calculating if you acquired your crypto more than 12 months before you disposed of it, exclude both the day of the disposal as well as the day of the acquisition.

Now you can apply the Capital Gains discount on this amount as per the following rules:

  • A discount of 50% for resident individuals. This includes partners in partnerships.
  • 33.33% for eligible life insurance companies and compliant super funds
  • The 50% discount doesn't apply to foreign resident individuals for capital gains made after 8 May 2012.

Hacked/Stolen cryptocurrency: deducting your losses

If your cryptocurrency gets stolen or if you lose your private key, you can claim a capital loss. However, in order to claim this capital loss, you need to be able to provide certain evidence. This includes:

  • 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

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.

Mining as a business

Any expenses related to mining — including electricity costs — can be deducted from your income to find your net taxable income. Moreover, the cost of capital assets, including both hardware and software, can be depreciated over their effective life. If eligible, you may also be able to apply the $20000 instant asset write off to the cost of the capital assets.

Mining as a hobby

If you've undertaken crypto mining as a hobby, the mined bitcoin constitutes holding a CGT asset and you would be subject to capital gains tax on disposal of the crypto. This means that no 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.

Filing your crypto tax reports

Here are all the steps you need to undertake to file your crypto taxes correctly:

  1. Download transactions from your accounts at different exchanges, not just for the assessment year but all previous years, so that you can calculate your cost basis correctly.
  2. You may have instances where you transfer from one account to another but instead of being marked as a transfer, it's marked as a Withdrawal in one account and a Deposit in another. Match all these transfers to ensure you don't end up paying tax on these.
  3. Crypto to crypto trades are also taxable so make sure you assign market rates to all the crypto trades to generate the cost basis correctly.
  4. Calculate your capital gains using FIFO/LIFO as per your accountant's recommendation.
  5. File your crypto taxes online or complete the paper tax return under Section 18 which is for capital gains.

Since this process can be very tedious and time-consuming, it might be worth looking at a crypto tax solution like Koinly. It will allow you to connect your wallets/accounts and carry out steps 1 to 4 automatically

Cryptocurrency Tax Deadlines

The Australian tax year is from July 1 to June 30. So if you're paying taxes for the year 2017-18, you need to complete your tax returns by October 31, 2018. That's why it's important to have a handle on your crypto transactions through the year, as delays in filing your cryptocurrency taxes can lead to penalties and fees.

Amending tax reports for previous years

The Australian Government is cracking down on crypto tax avoiders so if you haven't reported crypto taxes correctly in the last few years, it's best to proactively file an amended tax return and make changes to your previous tax reports.

How can Koinly help?

Koinly is a cryptocurrency tax calculator that helps you generate accurate and compliant capital gains reports, taking out much of the burden when it's time to file crypto taxes. With Koinly all you have to do to file your taxes is:

  1. Connect your exchange accounts and wallets (via API or CSV files)
  2. Review your imported data (tag airdrops/forks/mining-income/staking etc)
  3. Let the software automatically calculate your capital gains

It's truly that easy. Find out more.

Share:

Get our stories delivered

From us to your inbox, weekly.