Wondering how much tax you’ll pay on crypto in Australia? This guide will cover everything you need to know! We’ll talk about crypto capital gains tax, we’ll cover crypto income tax, and we’ll look at how much tax you’ll need to pay. Plus, we’ll share strategies that help you avoid paying too much tax. Finally, we’ll take you on a step by step walkthrough on how to file your crypto tax using myTax. Let’s go!
How much tax do you pay on crypto in Australia?
In Australia your crypto investment is generally subject to Capital Gains Tax. You report capital gains and losses within your Income Tax Return, and pay Income Tax on any net gains.
In Australia, although it is referred to as Capital Gains Tax, there is no separate tax and any gains you make will be assessable income subject to Income Tax. The percentage of Income Tax you'll pay is the same as your personal Income Tax rate, starting only from earnings above $18,201. Though if you hold for a year, you’ll receive a 50% discount on your capital gains for that particular asset.
If you’ve sold, traded or earned cryptocurrency in the last financial year, you'll need to declare this to the ATO in your annual tax return.
This guide is regularly updated
We keep a very close eye on the ATO's crypto asset guidance and regularly update this guide to keep you informed and tax-compliant.
12 September 2022: The ATO releases updated guidance on airdrops & tax free initial allocation airdrops.
27 June 2022: The ATO has issued a warning advising investors to avoid wash sales.
6 June 2022: Can't afford your crypto tax bill now the bear run has hit? Get help.
22 April 2022: EOFYS is near! Guideupdated for 2022.
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: Guideupdated 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!
Watch our Australian crypto tax guide
Is cryptocurrency legal in Australia?
Yes, crypto is legal in Australia and is taxed as property. Crypto exchanges operating in Australia need to register with AUSTRAC as a financial service provider.
Can the ATO track crypto?
Yes. - the ATO can track crypto. If you have an account with an Australian cryptocurrency designated service provider (DSPs), then it's likely that the ATO already has your data.
The ATO has a data matching program with Australian exchanges.
The ATO knows who 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 thousands of 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 warning letter, recipients were given 28 days to disclose their crypto trades. It is likely the ATO will issue similar letters in 2022.
How is crypto taxed in Australia?
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. This includes cryptocurrency coins, tokens, NFTs and stablecoins. But depending on the specific transaction, crypto may also be viewed as additional income and taxed as Income Tax.
How you're taxed depends on your specific circumstances, as well as the specific transactions you're making.
Crypto investor vs. trader
Whilst there are more complex nuances in Australian tax lax, the tax treatment of your crypto will typically depend on whether you're seen as an individual investor or a trader making a regular income. There are 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, but the lines can get a little fuzzy. Read here for more advice from the ATO, but in general, the following is a good guide:
Trader: A trader is active in crypto as a means to generate an income and isoperating 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 may tax you as a trader. The ATO’s definition of a trader is someone who undertakes “business activities for the purpose of earning income from buying and selling shares”. Relevant issues in determining the tax status of a taxpayer include the use or not of trading systems, the volume of transactions, the existence of a business plan, a profit motive, and records being kept in a “business-like manner”. Profits are taxed as income.
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 directly apply (i.e. outside of capital gains) - depending on how the crypto was acquired. Investors can access the 50% Capital Gains Tax discount for long-term gains, whereas traders can not. With that out the way, let's take a look at the general crypto tax rules in Australia for individual investors.
Capital Gains Tax on crypto
As a crypto investor you need to consider Capital Gains Tax (CGT) when you dispose of your cryptocurrency (CGT Event). Dispose doesn't just mean sell though. In general we can think of a disposal as any time your crypto trades ownership. This could include:
Selling crypto for AUD or another fiat currency.
Swapping crypto for crypto, including stablecoins and NFTs.
Spending crypto on goods and services (if not seen as a personal use asset).
Remember - if you hold your crypto for at least one year before you make a disposal - you'll be eligible for a 50% discount on any capital gains.
Capital Gains Tax rate
If you’re selling, trading, spending or gifting crypto as an individual (investor), the net capital gain made is paid at your Income Tax rate. Your income tax rate depends on your total income during the tax year.
ATO Individual Income Tax Rates 2021–2022
$0 - $18,200
$18,201 - $45,000
Nil + 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
$51,667 + 45% of excess over $180,000
Source: ATO. The above rates do not include the Medicare levy of 2%
How to calculate crypto capital gains
Calculating capital gains works in the same way, whether you're trading regular asset or crypto assets.
A capital gain or loss is the difference in value from when you acquired your crypto to when you sold or otherwise disposed of it. If you have a profit, due to your crypto having increased in value, you have a capital gain and you'll pay Capital Gains Tax on that profit. If you have a loss from your crypto decreasing in value, then you have a capital loss and you won't pay tax.
To calculate whether you have a capital gain or loss you need to start by knowing your cost basis. Put simply, your cost basis is generally whatever it cost you (AUD equivalent) to acquire your crypto plus any related fees - like purchase or sale fees.
Once you know your cost basis, simply subtract this from the sale price of your crypto. If you otherwise disposed of your crypto - subtract this from the fair market value of your crypto in AUD on the day you disposed of it.
Craig, an individual investor, bought 1 ETH in January for $1,000 plus a fee of $100. In May of the same year he sold his 1 ETH for $2,000 at plus a fee of $100. His cost basisis thus $1,100.
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 sales 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 have halved his tax liability - he'd pay only 50% of $800 thanks to the long-term Capital Gains Tax discount.
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 capital loss then you can deduct the loss from any capital gains, and even carry over the loss to future years. There is no time limit on how long you can carry forward a capital loss, but the losses must be used at the first available opportunity.
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.
Crypto wash sale
The ATO has issued a warning to taxpayers stating they should not engage in asset wash sales to artificially increase their losses and reduce their tax bill. A wash sale involves the disposal of an asset (like crypto) and the acquisition of the same asset (or a substantially similar asset) in a short period of time. Unlike many other tax offices, the ATO doesn't have specific time periods for a wash sale - instead it comes down to intent, if a taxpayer is seen to be deliberately creating artificial losses in order to gain a tax benefit, this would constitute a wash sale.
Assistant Commissioner Tim Loh said, “Don’t hang yourself out to dry by engaging in a wash sale. We want you to count your losses, not have them removed by the ATO.”
The ATO states taxpayers who engage in wash sales are at risk of facing swift compliance action and potentially additional tax, interest and penalties.
Crypto tax breaks
Australian tax residents get a little breathing space with a number of tax-free thresholds and allowances that happily apply to crypto too.
1. Tax free threshold: You'll only start to pay Income Tax when you hit $18,200 in total income per year.
2. 50% long-term capital gain 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.
3. Personal use asset: You may get an exemption from capital gains tax if you hold cryptocurrency as a personal use asset. In practice, it is rare for the Personal Use Asset rule to apply unless you have held crypto for a short period with the intention to purchase an item for personal use. Personal Use Assets are broadly items purchased for less than $10,000 of cryptocurrency to directly buy something else with crypto for personal use or consumption. Personal use rules are complex, but you can see our dedicated guide on how crypto personal use assets work, here.
Tax on lost or stolen crypto
If you lose your private key or your crypto is stolen by a hacker or scammer, you may be able to claim a capital loss. It all depends on whether you can prove what you lost - and that you can prove that you won't be able to recoup your loss. Learn more in our dedicated ATO lost crypto guide.
Income Tax on crypto
There are cases where crypto is treated as income and thus attracts Income Tax directly without being subject to Capital Gains, even if you're an individual investor.
As an individual investor, 'traditionally' you're about the long game, the capital gains. You could earn income from crypto in a number of ways, but it's easy to start 'acting' like a trader, so move with caution.
Three ways that make sense from a 'labour' perspective is to earn crypto is by:
Getting your salary paid in crypto
Selling NFTs you create - like an artist.
Becoming a validator and earning through PoS or PoW.
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 various activities:
Learn to earn campaigns, like Coinbase Learning Center or CoinMarketCap Learning Center.
Watch to earn platforms like Odysee.
Browse to earn platforms like Permission.io browser extension or Brave.
Play to earn games like Axie Infinity.
Shop to earn through browser extensions like Lolli.
Share to earn on platforms like Moon Faucet.
DeFi - or decentralised 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 or 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
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.
Broadly, here's when you won't pay tax on crypto in Australia:
Buying crypto with AUD.
Acquiring crypto as a gift.
Acquiring crypto from hobby-level crypto mining.
Transferring crypto between your own wallets - but watch out for transfer fees.
Purchasing goods and services with crypto under $10,000, if crypto is a personal use asset.
Donating crypto to registered charities with Deductible Gift Recipient (DGR) status.
Tax on buying crypto
Do you pay tax when you buy crypto in Australia? According to the ATO, it all depends on how you pay.
Buying cryptocurrency with AUD
You're not taxed when you buy cryptocurrency with AUD 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.
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 (to a DGR).
Buying crypto with crypto
Buying, swapping or trading one crypto for another (ex. BTC → XRP) is a taxable event in Australia. Even though you never received any dollars in hand, you still have to pay tax at AUD equivalent value if you made a gain on the disposal 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 any gains. 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 at the time of sale.
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
The ATO has confirmed that when you're moving crypto around between your own wallets - this isn't seen as a disposal and you don't need to report it or pay Capital Gains Tax. However, nothing is quite so straightforward in the world of crypto and transactions like adding and removing liquidity may get a little more confusing from a tax perspective.
Moving crypto between wallets
Moving crypto between different wallets that you own is not a taxable event and does not trigger Capital Gains Tax. However, watch out for transaction fees paid in crypto, which may be taxable.
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.
Let's say Sam buys 4 LTC for $1,000 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 a gain 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.
Moving your own crypto between wallets? No doubt you'll pay a transfer fee or network fee to do so. If you're paying this in AUD, this is tax free. However, more often than not you're going to be paying for this transfer fee in cryptocurrency.
If you're using cryptocurrency to pay that fee you’re technically spending the asset - which is viewed as a disposal. This is a taxable event. So while transfers are tax free, transfer fees are not if you paid the fee in cryptocurrency. You'll need to calculate your cost basis and capital gain or loss.
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 is the value of the fee amount at the time the fee was paid. See more on this from the ATO here and here.
You bought 1 ETH. The price of 1 ETH when you bought it is $4,385.
You decide you want to move your ETH from your Binance wallet to your MetaMask wallet. You're charged a flat fee of 0.005 ETH to do so.
You're paying in ETH - so you're disposing of your cryptocurrency. You'll need to calculate the cost basis and the fair market value of your crypto at the point of disposal. To keep it simple, let's say the price of ETH hasn't changed since you bought it.
0.005 ETH = $21.90. This is your disposal - you need to report this to the ATO as a disposal, regardless of the fact you have no capital gain or loss. Of course, doing this for every transaction can be time-consuming. Koinly can help you do this with our "treat transfer fees as disposals" setting.
CAPITAL GAINS TAX
Adding and removing liquidity
If you're adding or removing liquidity from various DeFi protocols, on the surface, this doesn't look like a taxable event but the ATO are likely to view each deposit as a taxable event based on their community guidance. However, this area is potentially complex and the tax treatment will depend on the nature of the DeFi protocols used. The ATO doesn’t yet have formal guidance on DeFi so it is advisable to get tax advice from a qualified accountant. You’ll need to keep detailed records of the DeFi transactions for tax purposes.
POTENTIAL CAPITAL GAINS TAX
How are airdrops and forks taxed in Australia?
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
The ATO has released updated guidance on airdrops and in most instances, airdrops are considered ordinary income at the fair market value of the tokens on the date you received them.
To figure out how much Income Tax you need to pay, calculate the fair market value of your airdropped crypto on the day you receive it and apply your income tax rate.
However, there is a specific exception to this rule for initial allocation airdrops. The ATO says these airdrops are not considered ordinary income upon receipt and therefore tax free. Your cost basis is whatever you paid for the tokens, or zero if you paid nothing.
Koinly's Australian Head of Tax, Danny Talwar, says “Some examples from the past year of Initial Allocation Airdrops that may apply include; ApeCoin (APE), Looks Rare (LOOKS), Ethereum Name Service (ENS), Optimism (OP), and Paraswap (PSP). Implications for Australian crypto investors are confusing, as this is in the middle of our tax season. For those who have already submitted their tax returns this financial year, this may be an opportunity to amend your crypto tax return, as receiving an “Initial Allocation Airdrop” is now not taxed on income or capital basis on receipt.”
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.
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, or zero if you paid nothing for them.
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 crypto from a hard fork
The ATO has two rules for hard forks, also known as chain splits, 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.
Selling crypto from a hard fork
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.
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
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. You can tag these transactions with the 'swap' label in Koinly.
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.
Crypto Gifts and Donations Tax
Gifts and donations can often be tax efficient , but can you use crypto for donations in Australia? Broadly, gifting to a Deductible Gift Recipient (DGR) may be tax deductible, but non-DGR donations will not be. 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 any perceived profits from the disposal.
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.
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 gain.
Your cost basis will be the fair market value of the coins on the day you received them.
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 and any associated capital gain is exempted.
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.
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
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
Crypto margin trading, futures and CFDs
The tax for crypto trading such as margin trading, futures and CFDs is a little complicated, so let's break down the taxes on crypto trading.
Margin trading, futures and derivatives
Margin trading with crypto involves borrowing funds from an exchange to carry out your trades and then repaying the loan later. There is usually an interest payment involved as well.
The ATO does not currently provide any clear guidance on what taxes apply to cryptocurrency margin trading, futures, options, or other types of derivatives. If you're an investor, it is worth getting professional advice.
While there is currently no guidance on how this is taxed, 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 and 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 example, 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, it is important to seek professional advice from a suitable qualified tax professional.
CAPITAL GAINS TAX
Contracts for Difference or CFDs are a complex area of taxation. The ATO has guidance - but it's quite convoluted.
In brief, in most instances gains from a CFD will be subject to Income Tax - where the transaction is entered into as an ordinary incident of carrying on a business, or where the profit was obtained in a business operation or commercial transaction for the purpose of profit making". In less jargon-like terms, most taxpayers trading CFDs are fairly experienced investors - regardless of their taxable status - as such, profits will be subject to Income Tax and not benefit from the various Capital Gains Tax breaks. Similarly, losses from CFDs are allowable deductions.
There are rare instances where profits from CFDs are non-taxable. This includes when a CFD is entered into for the purpose of recreational gambling - but it's very difficult to meet this bar for the ATO.
Crypto futures or options tax
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 you close your position 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. However, as you only realise a gain or loss when you close your position, it's likely any profit would be subject to Capital Gains Tax.
Note: If you're 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
NFT taxes Australia
NFTs are another area of crypto which have exploded in the past year. The ATO considers NFTs to be crypto assets in the same way other cryptocurrencies are, therefore they will also be considered a CGT asset for investors.. This means NFTs will be subject to the same tax rules as other crypto assets.
The tax treatment of the NFT will depend on your facts and circumstances including whether you are carrying on a business or are an investor.
Creating and selling NFTs
The tax implications of creating and selling NFTs will all depend on whether you're seen as partaking in a hobby, acting as an individual investor or running a business. If it's the latter, this is akin to creating and selling any other product, and therefore qualifies as business income which will be subject to Income Tax. You should check with a qualified accountant to see how the ATO may view your activities and the tax implications.
As well as this, farming NFTs for a staking reward will likely be considered to be income in the same way DeFi staking rewards would be.
Selling, trading and gifting NFTs
For those not deemed to be traders, you'll pay Capital Gains Tax when:
1. Buying an NFT with cryptocurrency: Capital Gains Tax due on any profit made on the cryptocurrency disposed of (unless this qualifies as personal use asset in which case no CGT will be due).
2. Selling an NFT for cryptocurrency or fiat currency: Capital Gains Tax due on any profit made on the NFT investment.
2. Swapping an NFT for another NFT: Capital Gains Tax due on any profit made on the NFT disposed of.
CAPITAL GAINS TAX
DeFi crypto taxes Australia
DeFi is still pretty new and it's constantly evolving, offering investors new opportunities to make money. All this to say, the ATO hasn't yet issued clear guidance on specific DeFi transactions and how they're seen from a tax perspective.
Don't jump for joy just yet. That doesn't mean you won't pay any taxes on your DeFi transactions. Instead, investors need to look at the current guidance on crypto transactions and infer the likely tax on their DeFi transactions.
DeFi - or decentralised finance - has opened a world of opportunities to use your own crypto to earn more crypto.
So you'll still pay either no tax, Income Tax or Capital Gains Tax on your DeFi transactions.
At a basic level, the tax you'll pay depends on whether you're seen to be 'earning' crypto or 'disposing' of crypto. Remember, earning crypto is anytime you're receiving new coins or tokens as a result of your transactions. This would cover many DeFi transactions. Meanwhile, when you're swapping, selling or spending tokens on DeFi platforms - this would be subject to Capital Gains Tax.
It is important to discuss your DeFi transactions with an accountant as there is no formal guidance from the ATO yet. The following are potential tax treatments which may apply however we are yet to get confirmation from the ATO.
Earning interest from DeFi protocols: Income Tax if you earn new coins. Capital Gains Tax if you accrue value on LP tokens.
Borrowing from DeFi protocols: Likely no tax unless you receive tokens in return for collateral.
Paying interest in DeFi protocols: No tax unless you're paying in crypto, in which case, potentially Capital Gains Tax.
Selling or swapping NFTs: Capital Gains Tax, although if you're selling NFTs as a trader, this could be viewed as additional income and Income Tax would apply.
Buying NFTs: Capital Gains Tax (if you buy with crypto - which is the only option for most).
Staking on DeFi protocols: Income Tax if you earn new coins or tokens. Capital Gains Tax if you accrue value on staked tokens.
Yield farming DeFi protocols: Income Tax if you earn new coins or tokens, Capital Gains Tax if your tokens instead accrue value.
Earning liquidity tokens from DeFi protocols: Income Tax or Capital Gains tax depending on whether you're earning new coins or increasing the value of one asset.
Adding liquidity to liquidity pools: Capital Gains Tax if you receive a token in exchange for your liquidity.
Removing liquidity from liquidity pools: Capital Gains Tax if you exchange a token to remove your liquidity.
Earning through play/engage to earn DeFi protocols: Income Tax.
Profits from DeFi margin trading and options protocols: Capital Gains Tax.
We recommend speaking with an experienced crypto accountant for clear guidance on DeFi tax to remain compliant.
Earning from DeFi protocols
Earning new coins or tokens from DeFi?
Anytime you're seen to be 'earning' from DeFi - whether that's new coins or tokens - it's likely that the ATO will view this as additional income and you'll pay Income Tax based on the fair market value of the assets in AUD on the day you received them.
Selling or swapping tokens on DeFi protocols
Anytime you sell or swap a coin or token on a DeFi protocol, this is likely to be viewed as a disposal from a tax perspective, making it subject to Capital Gains Tax. You'll pay tax on any profits as a result of 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
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.
Getting paid in Bitcoin
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.
Spending long-held crypto or more than $10,000
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.
Jasmine has been regularly keeping cryptocurrency for over six months with the intention of selling at a favourable exchange rate. She has decided to 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
Spending crypto within the Personal Use Asset rule
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 looks like 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 with the intention to buy the personal use asset.
3. The item bought is priced under AUD $10,000.
Steve needs a new hoodie. His favourite store offers discounted prices for payments made in cryptocurrency. Steve pays $120 to acquire cryptocurrency with the intention to use 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.
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 trading stock. Trading stock rules bring to account the tax value of stock at the year end. 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).
Jake runs a crypto trading business. On the 15th of 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. For income year 30 June 2018, 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 and includes $50,000 being the value of Bitcoin on hand as assessable income in respect of the unsold bitcoin.
A recent trend in crypto is the growth of DAOs (Decentralised Autonomous Organization). They are effectively member-owned communities without central leadership. It’s an organisational structure that allows stakeholders to make governing decisions without the need for any kind of centralised authority. Instead of a small Board of Directors making decisions about the company, DAOs enable the community of token holders (members) to vote on the future of the organisation.
A good example of this is Uniswap. Holders of UNI tokens vote on issues relating to the protocol - for example, how transaction fees are used and what new features to add.
Members of a DAO can profit from the DAO in various ways. For example, they might receive a share of the profits which result from the activities of the DAO or they might sell their DAO tokens to investors.
The ATO has no specific guidance on the taxation of DAOs. As DAOs are a complex and evolving area, it is advisable to speak with an accountant or tax lawyer if you are engaging with DAOs.
What crypto records will the ATO want?
The ATO requires you to keep detailed records of cryptocurrency transactions for 5 years after you 'prepared or obtained the records', or “completed the transactions or acts those records relate to”, whichever is later.
"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 taxes
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.
When to report your crypto taxes
The Australian tax year runs from 1 July - 30 June the following year. If you are an individual lodging your own tax return for 1 July, 2021 – 30 June 2022, the tax deadline is 31 October 2022. Lodging through an accountant? You have until 15 May 2023 to file.
Crypto cost basis method Australia
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. Traders 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 you can change your cost basis method to other ATO-approved methods in settings.
How to calculate your crypto taxes with 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:
Many crypto investors enjoyed the bull run back in 2021 and didn't set aside adequate funds for their tax bill now the bear run has hit. So if you're panicking about how you're going to pay the ATO now you've done your calculations for the 2021-2022 tax year, you're not the only one.
First and foremost, don't just avoid the ATO and hope you can get away with not declaring your crypto. The penalties are far more severe for tax evasion than they are for filing late or being unable to pay your crypto tax bill in one.
The ATO offers a lot of support for taxpayers unable to pay on time, including payment plans. They even have a tool to help you create a payment plan you can afford and see how much interest you may be charged. It's best to speak to the ATO early if you know you'll be unable to pay on time to get the best payment plan possible. Find out more.
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.
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 a smart move especially if you have DeFi earnings to consider.
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.
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.
How to avoid tax on cryptocurrency in Australia
Want to avoid tax on crypto? Well, you can't swerve your tax obligations entirely - but there are quite a few ways you can optimise your tax position before the end of the financial year to pay less tax overall.
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 Australian 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.
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.
Australian Bitcoin ETFs
On 27 April 2022, a Bitcoin exchange traded fund (ETF) launched, which can be a tax efficient way to gain exposure to Bitcoin. ETFs track the price of Bitcoin and are aimed at individuals who wish to invest in Bitcoin without having to deal with the security and technical aspects of self custody.
Many Bitcoin ETFs pay their investors in the form of dividend distributions so if the newly created Australian ETFs emulate this strategy, then Australian ETF investors can gain tax advantages in the form of franking credits (subject to qualifying person rules).
Franking credits arise for shareholders when certain Australian-resident companies pay income tax on their taxable income and distribute their after-tax profits by way of franked dividends. These franked dividends have franking credits attached.
If an Australian company tax is already paid by the companies within an ETF, then investors don’t need to pay those taxes again at the personal level. The corporate taxes paid are passed down to the Australian investor through franking credits. These franking credits can then be used to reduce an investor’s total tax liability.
Hold onto an asset for more than 12 months
As mentioned above, you are entitled to a 50% discount on capital gains if you hold an asset for more than 12 months. So before disposing of an asset, it could pay to check how long you have held it for - if it’s close to the 12 month threshold, you could save a lot of tax by simply holding off the sale until 12 months has passed.
Offsetting your capital gain with capital losses
Capital gains from current or prior years can be used to reduce a capital gain and therefore the amount of CGT you need to pay. So always remember to report your losses - just because you don’t have tax to pay doesn’t mean you should ignore reporting these - these losses can help you in future.
Donate your crypto to charity
You can claim an income tax deduction for gifts or donations of crypto to organisations that have the status of deductible gift recipients (DGRs). You can check the DGR status of an organisation at ABN Look-up: Deductible gift recipients
The deduction you are entitled to is equal to the market value of the crypto at the time of the donation. You will also not have to pay any capital gains taxes as a donation to a DGR is not considered to be a taxable event.
The cost of your Koinly plan can be listed as a business expense. This would go under 'other expenses'. For individuals, the cost of your Koinly plan may be deductible as ‘expenses you incur in managing your own tax affairs’
Watch out for warning 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.
It's highly likely many investors will receive the same warning letters in 2022.
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 or registered tax agent. 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.