Working out whether you are a crypto trader or investor at tax time can be…
Crypto Trading as a Business 101
Cryptocurrency trading as a business in Australia can deliver some impressive benefits. Do you qualify as a crypto trading business?
If you trade cryptocurrency on a regular basis, you may have considered the possibility of obtaining classification as a cryptocurrency trading business. There are a number of advantages offered to cryptocurrency trading businesses, but getting qualified as a business in the crypto trading world — from the perspective of the tax man — is not so simple.
In this article, we’ll take a look at the tax benefits that come with classification as a crypto trading business, and the requirements you’ll need to meet to be defined as a business.
Do You Qualify as a Crypto Trading Business?
There are many requirements involved in operating as a cryptocurrency trading business. Simply operating with a high volume of trades is not enough — crypto traders seeking business classification must be operating in a business-like manner.
- Unfortunately, the specific definition what constitutes business-like activities under ATO rules is difficult to pin down. If you meet most of the requirements on the following list, it’s possible that you may be operating a business of trading crypto:
- Significant capital investment in cryptocurrency trading
- Operating with a focus on short-term profit generation, as opposed to long-term investment
- High volume, regular, and repetitive transactions that follow a regular pattern on a daily or weekly basis, over an extended period of time in a manner consistent with strategic trading patterns
- Operating in a business-like manner: business registration, documented strategy, office space, professional analysis and research, business planning, consistent asset selection, and business-like record keeping
The Importance of Accurate Records
If you attempt to declare your operation as a crypto trading business, it’s highly likely that the ATO will conduct an extensive review of your trading. The ATO is extremely stringent regarding the requirements needed for business classification, so accurate record keeping is pivotal.
- To support your case when subject to ATO review, you’ll need to keep records of the following:
- Trading records of all transactions
- A clearly defined trading strategy
- Business registration documents
- An extensive and accurate log of work time
- Detailed research complete with sources
- Business financial records
Do Crypto Traders Need an ABN?
Any business operating in Australia is required to have an active ABN number. Simply getting an active ABN set up doesn’t mean you are automatically defined as a crypto trading business, however — virtually any Australian can obtain a valid ABN by filling out the right forms.
If you’re seeking classification as a crypto trading business, an ABN is essential.
Crypto Trading Business Benefits
- The benefits delivered by classification as a crypto trading business are as follows:
- Small Business Tax Concessions: These concessions change on a yearly basis, but typically allow small business operators with an offset worth up to $1,000 & reduced tax rates.
- Loss Rules: Non-commercial loss provision forces traders with not activity to carry losses forward. Crypto trading businesses that generate over $20,000 of sales or trades in a financial year (not hard to do) but record an overall loss can often claim this as a loss against the rest of their taxable income, allowing operators to claim loss against salary.
- Claiming Expenses: All business-related expenses and crypto-related expenses such as hardware, software, subscription, and office expenses can be claimed as a deduction – and can utilise the $30,000 small business asset write-off to claim immediate deductions.
- Trade Revenue Reporting: For crypto trading businesses, sells are considered trading income, while buys are considered trade purchases. Also considered in the calculation are opening balance and closing balance for the crypto held.
Crypto Trading and GST
The ATO defines the sale of cryptocurrency as “input taxed sales,” which are exempt from the $75,000 GST registration threshold. This means that even if a crypto trading business has made more than $75,000 worth of trades in a single year, it won’t have crossed the GST threshold.
Crypto Trading Business Tax Returns
When operating as a crypto trading business, there’s no need to notify the ATO in advance. Crypto trading business are able to declare their income and expenses as part of the Business Schedule of the tax return.
Submitting a tax return as a crypto trading business can be complicated. If you’re interested in determining whether you qualify as a crypto trading business, or are seeking assistance in filing a crypto business tax return, get in touch with Fullstack today
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.