Understanding Crypto Tax in Australia

It may sound boring, but crypto traders in Australia need to have a basic understanding of how buying and selling Bitcoin (or any other cryptocurrency) will affect their tax. Why? Because, regardless of whether you were crypto trading in Australia or if the transaction was made overseas, if you’re selling, buying, stashing or mining, then the Australian Taxation Office (ATO) needs to know. This applies even if you’re giving away your crypto for free. And with Bitcoin traders in Australia becoming increasingly active, it’s no surprise that the ATO is paying more than the usual attention to crypto trading in Australia.

CRYPTO TRADING IN AUSTRALIA – AM I CLASSED AS A TRADER OR AN INVESTOR?

While it may sound like the same thing, the ATO views crypto trading differently from crypto investing. So, how do you establish if you are a crypto trader or a crypto investor?

• Crypto Traders in Australia: The ATO will classify you as a trader if you’re running a business where the main goal is to generate an income from crypto trading. As a crypto trader, any profit you make from buying and selling Bitcoin, Ripple and Ethereum, or any other form of cryptocurrency, is counted as business income and taxed accordingly. 
• Crypto Investors in Australia: Most Bitcoin traders in Australia would fall into the category of cryptocurrency investors. An investor is anyone who is using cryptocurrency trading as a form of personal investment. With crypto investing, you’ll make most of your profit from capital gains, i.e., the money you make when you sell an asset that has become more valuable with time. For this reason, crypto investors in Australia will have to pay Capital Gains Tax (CGT).

You can be classed as both a crypto investor and a crypto trader by the ATO. For example, this would be the case if you were running a business for the purpose of trading in crypto, but you were also buying and selling crypto for personal investment on the side. But if that’s your intention, then you’ll need to make sure you keep everything separate. This means different digital wallets and no casual trading of currency between the two accounts. 

CRYPTO TRADING IN AUSTRALIA – WHAT DO I NEED TO KNOW ABOUT CAPITAL GAINS TAX (CGT)?

Cryptocurrency is defined as an asset by the ATO. If you buy Bitcoin in Australia (or any other form of cryptocurrency) and then leave it sitting in a digital wallet, then this won’t incur CGT (even if the value increases dramatically). But, as soon as you start to dispose of your crypto (selling, trading, or even giving it away), then things become more complicated tax-wise.  

UNDERSTANDING CAPITAL GAINS AND THE LONG-TERM CAPITAL GAINS TAX DISCOUNT

Capital gain is how much money you make when you sell an asset. For example, imagine the Bitcoin price in Australia was $5,000, and you purchased one coin. But nine months later, the price has risen to $9,500 per Bitcoin, so you decide to sell your coin. In the eyes of the ATO, you’ve made a capital gain of $4,500, and they will charge you CGT on that amount (9,500 – 5,000 = 4,500). 

Things change when you’ve held your cryptocurrency for longer than one year. After 12 months, you benefit from the Long-term Capital Gains Tax Discount. For Australian residents, generally speaking, this means a 50% discount on the amount of Capital Gains that you will need to include as taxable income.

FACTORING IN CAPITAL LOSSES

The other thing the ATO will consider when determining how much CGT you owe is whether or not you had any capital losses. This happens when you sell an asset for less than what you originally paid for it. Capital losses can be used to offset your capital gains – for example, if you made a capital gain of $4,500 on one crypto trade, but a capital loss of $2,100 on another trade, then your overall capital gain (the amount you will be taxed on) is only $2,400. 

If you’re crypto trading in Australia, then there may be other tax considerations that you’ll need to be aware of. While this article provides a basic understanding of crypto-tax in Australia, it is general advice only. For more information, contact the ATO or seek independent expert advice.