Cryptocurrency has quickly become a strong alternative currency for all kinds of markets, including those that could not exist without a digital currency to back them up. However, it has also created the problem of taxation – mainly, governments needing to figure out how it should work.
If you are a new crypto owner in Australia who is worried about tax, here is a breakdown of what to expect and where you should start looking for more specific details.
The ATO and Crypto
The Australian Taxation Office has estimated that as many as one million Australians have cryptocurrency, and that means that they have funds beyond the normal taxed Australian Dollar. Because of this, the government has tried to work out how they can tax crypto fairly.
Unlike a conventional currency, the ATO considers cryptocurrency to be a property, allowing it to fall under asset tax laws and regulations. In theory, this is because cryptocurrency differs from regular money, meaning that it can’t be treated like the same thing.
But what does this actually mean?
Investors and Traders
All Australians who own cryptocurrency can fall into one of two categories: investor or trader. Both have different tax obligations and are treated differently by the ATO, so knowing which one you fall under is important.
An investor regularly trades cryptocurrencies, either to earn a profit or to separate your funds. Either way, since cryptocurrency can be intentionally bought and sold for profit, you are considered a trader. This means that most Australians will fall under this label, which subjects them to Capital Gains Tax.
A trader, on the other hand, handles cryptocurrency as part of their business. This also requires the individual in question to properly manage their records, avoid activities that do not make sense for a commercial business, and generally present themselves as a good business when managing crypto.
Capital Gains Tax
Capital Gains Tax is the type of tax applied to assets rather than money. When selling, trading, or gifting cryptocurrency (counted as ‘disposing’ of it), you need to consider your CGT.
CGT is based on the total amount that you gain from the disposal. For example, if you bought $100 of crypto and sold it for $220 later down the line, you will have made a $120 taxable gain. If the opposite happens, you made a capital loss, which offset gains before tax is calculated.
Owning an asset for more than twelve months can sometimes lead to a 50% discount of Capital Gains Tax, making it less expensive to retain those assets long-term.
There is a lot to cover when it comes to crypto tax, and not all of it can be easily explained at the same time. However, there are also plenty of sites that can offer good breakdowns of crypto tax laws in Australia, including plenty of examples that might make the process easier.
Remember that you can always get in contact with the government if you think that something is wrong or if you want to be sure that you are paying tax correctly. Keeping track of your tax obligations is important, especially as a frequent investor.