The 2024 calendar year has started off with a bang for the crypto market. Starting off the year the U.S. Securities and Exchange Commission (SEC) approved Bitcoin (BTC) Electronically Traded Funds ($BTCETF) resulting in an increase in demand that the daily supply of BTC (currently 900) can’t keep up with as managed funds acquire BTC. This has paved the way for an exciting year for crypto.
Current State of the Crypto Market
With a surge of demand spear headed by the BTC ETF’s (collectively acquiring 3,000 – 4,500 BTC daily), the price of BTC has reached all time highs. Creating an exciting time for investors there are other influences impacting the price of BTC and the wider crypto market such as:
- Approval of BTC ETFs leading to an increase in capital into the crypto market through institutional investors and retirement funds.
- Increased legitimacy of cryptocurrency as an asset class improving its attractiveness as part of a diversified asset portfolio.
- BTC halving event due mid April 2024 reducing supply and impacting the price as demand grows
- Monetary reform resulting in an increase in crypto investments.
- Decreasing interest rates relieving households of mortgage stress, increasing discretional and investment spending.
With all the excitement in crypto right now it’s only a matter of time before there is increased pressure for investors to take profits.
Additionally, institutional investors will want a return on investment and taking profits will entail, when this happens, it may lead to a domino effect with the price of BTC falling placing increased sale pressure as fearful investors sell their holdings.
As with most market cycles, it will pick back up and when the price of BTC falls it presents an ideal opportunity for investors to increase their holdings.
BTC Halving
If history is to repeat itself, BTC is forecasted to increase substantially 12 months following the halving event. So, what does this mean for you and how can it impact your Income Taxes and potentially put you in an unfavourable tax position. Let’s discuss below.
Crypto Traders
If you carry on a business trading crypto assets the tax treatment of your affairs is vastly different than someone who is investing in crypto and subject to the capital gains tax regime. Typically, your end of year (30th June 20XX) holdings represents your closing stock which gets assessed as ordinary income.
This means that your overall business profit will increase for either the cost or market value of your portfolio despite not actually selling anything. This will result in increasing your overall taxable income where you will be assessed at your marginal tax rate.
Understanding this, it’s important to work with a registered tax agent who specialises in crypto such as Fullstack Advisory. We will work with you to ensure your affairs are being reported in a manner which provides you with the most favourable tax outcome.
Importance of accurate Crypto Tax Reports
We work with our clients to accurately prepare Crypto Tax Reports ensuring that all crypto data from exchanges and wallets is recognised and reported correctly for tax purposes. It’s important to consider the cost of self-preparing your own Crypto Tax Reports from popular crypto tax software options.
Many crypto affairs we see are complex and do not get reported correctly when self-prepared. This typically results in cost bases not being recognised correctly which artificially inflate your capital gains for the year resulting in an unfavourable tax position.
It’s also important to note, that where you are unable to substantiate your purchases, the Australian Taxation Office (ATO) will likely assume a nil cost base. Therefore, the value in having your reports prepared professionally is of paramount importance in paying the correct amount of tax.
Crypto Investors
For crypto investors, many of you with holdings longer than 12 months will be entitled to the Capital Gains Tax (CGT) 50% discount. This is a great tax concession which essentially halves the effective tax rate.
However, many first year clients are surprised to have incurred large capital gains events due to misunderstanding what triggers a taxable event in the first place.
Below are some of the main events that will trigger a capital gains event:
- Selling your crypto to fiat
- Swapping your crypto coin/token for another crypto coin/token
- Bridging your crypto
- Wrapping your crypto
- Providing your crypto as collateral (new ATO view)
By understanding what creates a taxable event will assist you in anticipating your running income tax liability and help you budget accordingly, in particular for those of you already at high marginal tax rates.
Key Tax due dates
It’s important to understand the key tax due dates so that you can further plan how to manage any anticipating income tax liability. With the current state of the crypto market, we suspect this will be many of you.
2024-2025 key dates (not officially issued – but likely to be) for many of you:
- 21 days after the notice of assessment has been issued – if your Return is not due on 15th May 2025
- 21st March 2025 – if your Return was originally due on the 15th May 2025 and lodged on 12th February 2025 or before
- 21st April 2025 – if your Return was originally due on 15th May 2025 and lodged from13th February 2025 to 12th March 2025
- 5th June 2025 – if your Return was originally due on 15th May 2025 and lodged from 13th March 2025
Pro Tip
Preparing your Income Tax Return sooner rather than later will allow you to maximise budgeting for an anticipated tax liability. Concerning the key dates above, you may use this information to maximise the use of your investment capital and your potential return on investment.
Reach out today!
As one of the original and largest crypto tax and advisory firms in Australia, Fullstack Advisory’s crypto tax team is committed to your success. We are committed to providing exceptional ongoing tax compliance and advisory services to the crypto community.
Our crypto tax team has extensive knowledge and experience working with crypto matters from day one, including complex DeFi situations, tax structuring and strategy advice, and more.
We understand that your affairs are unique and as part of our commitment welcome you to schedule a free 15-minute consultation to discuss your affairs and how we can help.
Book a time with the Fullstack Crypto Tax Accounting Team today.
