Cryptocurrency and Taxes: What you need to know

Over one million Australians own cryptocurrency and while cryptocurrency first entered circulation in 2009, it wasn’t until 2014 that the Australian Tax Office (ATO) defined how cryptocurrency fits into existing tax law.

There has been a significant increase in cryptocurrency investors during 2022 and the ATO is expected to keep a close eye on capital gains from cryptocurrency this year.

In saying that, most cryptocurrency traders are unaware of their tax obligations. Tax treatments for cryptocurrency differ depending on the time frame you hold your investment and your intention for making this investment.

When is cryptocurrency taxed?

Cryptocurrency gets taxed when you trade, sell or gift and when you exchange one cryptocurrency for another. It also gets taxed when you convert cryptocurrency to a fiat currency (government-issued currency).

Cryptocurrency, in most situations, is viewed by the ATO as ‘property’ and is subject to Capital Gains Tax. However, if you can purchase up to $10,000 in cryptocurrency to use for purchasing personal items, and not be subject to Capital Gains Tax.

You may have tax responsibilities in another country if you have transacted with a foreign cryptocurrency exchange.

How the ATO tracks cryptocurrency trades

The ATO has collected records from cryptocurrency designated service providers (DSPs) since 2019 to ensure individuals are tax compliant. The ATO can access transaction and account details, linked bank accounts and associated wallets, types of cryptocurrencies and more. As most gains and losses related to cryptocurrency are subject to tax, it’s essential to know your tax requirements or work with an accountant who understands the ATO cryptocurrency guidance.

Can I claim a deduction for losing my cryptocurrency?

Whether you’re a trader, speculator, or investor, you may be able to claim an income loss or capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen.  Recently the ATO has become increasingly strict with their view of when cryptocurrency is lost or stolen. To claim a loss, taxpayers must provide evidence that their cryptocurrency asset has been lost and cannot be replaced.

Investing in cryptocurrency in a self-managed super fund

There are several regulatory and administrative issues that trustees of self-managed super funds (SMSF) should know before investing in cryptocurrency. ASIC recently issued warnings about an increase in scams involving crypto-assets. When developing and reviewing your SMSF investment strategy, speak to your business advisor regarding the suitability of investing in cryptocurrency.

For more information on SMSFs, visit https://www.beyondadvisors.com.au/making-your-smsf-investment-strategy-a-breeze/

What cryptocurrency records should I keep for tax time?

Record keeping is crucial when it comes to trading in cryptocurrency. Your records must include:

  • Date of transaction,
  • Value of the transaction in Australian Dollars at the time of the buy, sell or exchange,
  • What was bought or sold,
  • Brokerage or commission fees paid on purchase, sale or exchange,
  • Any other agent legal or account cost incurred

Most cryptocurrency trading platforms offer a record-keeping service that keeps detailed records of transactions during the year and issues a tax report at the end of each tax year. Paying the extra fee for this service saves tax agents time and money in determining your tax obligations.

For more information on cryptocurrency and tax, please refer to the ATO website link https://www.ato.gov.au/General/Other-languages/In-detail/Information-in-other-languages/Cryptocurrency-and-tax/

Beyond Advisors offers professional advice for businesses of all shapes and sizes. For assistance on cryptocurrency trading and tax, get in touch with our helpful team today.

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