Working out what cryptocurrency taxes apply to you can be troublesome. We’ll proceed to break down crypto tax basics for holders, traders and hobbyists.
Depending on the way you use cryptocurrency, your tax obligations can vary wildly. The ATO now assesses cryptocurrency purchases, sales, and trades from a nuanced position that takes into account factors such as the way you trade, whether you are operating a business, and whether your crypto activities fall under the definition of a hobby.
In this guide, we’ll take a look at the most common crypto tax situations and examine the tax obligations for each.
Crypto Tax for Buying Crypto
In Australia, the act of purchasing cryptocurrency itself is, in most cases, not a taxable event. Buying cryptocurrency for yourself is taxed as an investment, with gains or losses taxed accordingly.
Capital gains tax is applied to cryptocurrency purchases on disposal. If you sell or gift cryptocurrency, the ATO considers it a taxable event. Trading or exchanging cryptocurrency for another cryptocurrency or for fiat currency will also trigger a taxable event.
The use of cryptocurrency to obtain goods or services is another taxable event, with the exception of crypto used to obtain goods or services for personal use.
If you purchase cryptocurrency and make a capital gain on its sale at a later date, you will most likely be required to pay tax on it. Should the sale of the cryptocurrency in question incur a capital loss, however, the losses can be used potentially offset capital gains in the current or future years.
Crypto Tax for Long Term Holders
Holding cryptocurrency over a long-term period can result in tax benefits — the ATO takes the amount of time cryptocurrency is held into account when assessing the tax obligations of the owner.
If a cryptocurrency holder keeps their cryptocurrency for over a year before disposing of it, the holder may be eligible for a 50 percent capital gains tax discount.
If there has been trading activity in the interim, this could interact
with the ability to obtain the discount provided for 12 months holdings however.
The longer an individual holds cryptocurrency, the less likely the ATO is to consider it to be a personal use asset.
It’s important to also note the impact of chain splits and forks on long-term holding. Cryptocurrency gained through these vectors is subject to capital gains tax when disposed of — the cost base of any cryptocurrency acquired through chain splits or forks is assessed at zero, so the disposal value in total is considered to be the capital gain.
Crypto SMSF structures are also used for long-term holds offering a concessional tax environment.
Crypto Tax for Traders
Cryptocurrency traders that buy and sell crypto on a regular basis in order to generate profit are likely to be defined as a crypto trading business by the ATO. There are multiple factors that are considered by the ATO when assessing a trader, such as the amount of capital invested in trading, whether the trading operation has a business-like structure, and the regularity, volume, and repetition of trades.
Profits generated by traders is considered to be part of assessable income. Trading expenses, such as acquiring cryptocurrency, can also be claimed as deductions.
Crypto Tax for Hobbyists and Researchers
Crypto hobbyists and researchers typically fall under the same tax obligations as personal cryptocurrency purchases for investors. This means that cryptocurrency disposed of by hobbyists and researchers is likely to be subject to capital gains tax. This includes mining crypto as a hobby.
It is important to observe the differences between a hobby and business as a mining business would result in the trading stock rules being applied instead.