PayPal’s PYUSD stablecoin launch is set to advance crypto use in a big way. Read on to find out more about the fintech giant’s entry into crypto.
The recent announcement from PayPal issuing its own US dollar (USD) backed stablecoin (PYUSD) is welcoming news for the cryptocurrency market and is evidence of the practical application of cryptocurrency in traditional monetary processes in modern society. This is promising news for economies and the Web3 space with the share market responding well reflecting a jump in PayPal’s share price. PayPal is offering no fees for buying, selling, and transferring PYUSD which should promote its use amongst crypto users.
Caution for Australian Tax Residents
If you are an Australian resident for tax purposes, it is important to be aware of the various tax implications which give rise when you are transacting with cryptocurrency assets. Firstly, the ATO collectively views stablecoins, cryptocurrencies, and Non-Fungible Tokens (NFTs) as cryptocurrency assets for income tax purposes. This means if you are buying, selling, or transferring PYUSD or any other stablecoin you must keep appropriate records, and bring this to account in your Income Tax Return.
How you bring this to account in your Income Tax Return will depend on how you are transacting in cryptocurrency. By and large, transacting with cryptocurrency has three main tax implications depending on whether it is personal use, as an investment, or used in the carrying on a business. The tax outcomes in respect to these activities will either be non-assessable, subject to capital gains, and treated as ordinary income respectively.
It is important to seek the advice of a crypto tax professional that understands the various tax implications and can guide you through this process.
With the new PayPal stablecoin we may find an increase in cases where cryptocurrencies are being used as a personal asset. The ATO prescribes in its guidance (QC 69954, updated 30June 2023) that cryptocurrency assets (including stablecoins) that are held for a short period of time to buy items for personal use or consumption are more likely to be a personal use asset. It is important to consider the ATO’s emphasis on “more likely” as this may be the case for your affairs, consideration must be applied for any other crypto-related activities as this may also change the personal use characteristic the ATO refers to. To contrast this, the ATO also advises that where crypto assets are acquired and held for some time before transacting, or where only a portion of the acquired crypto is used for personal use or consumption, it is less likely that it will be personal use.
Personal Use Limitations
According to the ATO, you must disregard any capital gain or loss on personal use crypto assets that have been acquired for less than $10,000. If you acquired the crypto asset for $10,000 or more, then it will likely be assessed for tax purposes as either capital or ordinary income depending on how you use it.Determining your crypto assets as being for personal use requires special care and attention, where you may regularly buy cryptocurrency for personal use and consumption. For example, acquiring stablecoins or other crypto assets which you regularly use for payments for goods or services may change over time. However, the overall pattern of how you conduct your activities in this manner must be considered to determine the overall personal use nature of the crypto assets.
Capital Gains Tax
Crypto assets are mainly subject to the capital gains tax regime whereby taxpayers acquire, sell, swap or transfer crypto assets as an investment. Unless you are specifically carrying on a business or the crypto is being used as a personal use asset. If your crypto assets are subject to capital gains tax a capital gains event will trigger if you sell, swap, trade, gift or use your crypto to acquire goods or services. The capital gains event will result in a capital gain if the proceeds (being fiat received, or market value of received goods or services, or other crypto) is more than the cost base (the acquisition price or market value). You would make a capital loss if the proceeds received is less than the cost base.
Crypto assets treated in this manner are also eligible for the CGT 50% discount if the asset was held for greater than 12 months at the time of sale. Providing a significant tax advantage for long-term holders.
As discussed previously, the ATO treats stablecoins, cryptocurrencies, and NFTs under the same category of crypto assets for income tax purposes. Therefore, if your crypto assets are subject to capital gains so are your stablecoins. Consider the acquisition of PYUSD used to acquire other cryptocurrencies. This will be treated as a swap sale and will trigger a capital gains event. It is imperative that you keep adequate records so that any subsequent capital gains calculations can be accurately made and substantiated. Please refer to our article Cryptocurrency Recordkeeping Tips & Tricksfor more information on keeping adequate records.
If you are carrying on a business that holds or uses crypto assets, the tax implications will depend on how the crypto activities are being conducted. The ATO advises in its guidance (QC 69963, updated 29th June 2023) that crypto assets will be treated as trading stock if the business is trading crypto, mining, operating an exchange, or is in the business of buying and selling NFTs. With the potential rise in use of stablecoins, businesses may also be attracted to accept crypto as payment for goods and services being offered. In doing so, the crypto assets received will be treated as trading stock as well.
Trading stock is treated differently to capital assets. If the crypto assets are treated as trading stock, then ordinary income tax treatment will allow. This will result in the disposal of crypto assets being treated as sales, the acquisition of crypto assets being treated as purchases, and for any crypto assets still held at the end of the financial year being treated as closing stock. It is important to note that closing stock is assessed as ordinary income and will increase the net profit position of your crypto business activity. On the other hand, opening stock is treated as an expense, or deduction for accounting and tax purposes and will reduce the net profit position.
However, a business’s crypto assets may also be subject to the capital gains tax if the assets are being held as an investment. The different ways that a business may hold and use its crypto assets and the changes to the tax treatment results in a complex compliance matter. How your crypto should be accounted for in your financial accounts, including the profit and loss and balance sheet will also change as a result. Clear record keeping and segregating activities into different wallets and exchanges will likely lead to reducing compliance costs as this may reduce the processing time of collating your crypto affairs for tax purposes.
The information presented in this article is based on the current guidelines provided by the Australian Taxation Office (ATO) and relevant legislation which is subject to change. This article is intended for educational purposes and may not relate to your specific situation therefore, we recommend reaching out to our crypto tax team for a comprehensive review of your affairs.
As one of the original crypto tax and advisory firms in Australia, Fullstack Advisory is committed to ongoing tax compliance and advisory support for the crypto community. As part of our commitment, we welcome you to schedule a no-obligation 15-minute consultation to discuss your affairs and how we can help. Reach out to the Fullstack Crypto Team today.