Camden Professionals

Crypto Tax in Australia: Trader vs Investor Status Explained

Cryptocurrency may have started off unregulated and under the radar, but those days are gone. The Australian Taxation Office (ATO) is keeping a close eye on all crypto-related activity—and whether you’re classified as a trader or an investor will determine how your profits are taxed.

Investor vs Trader: What’s the Difference?

The ATO distinguishes crypto investors from traders based on intent, frequency, structure, and scale:

Investor: Holds crypto long-term for capital growth. Trading is infrequent, informal, and usually personal.
Trader: Buys and sells crypto frequently with the intent of making a profit. Activity resembles a business—structured, documented, and often carried out under an ABN.

How Taxation Differs

Category	Investor	Trader
Tax Type	Capital Gains Tax (CGT)	Business Income
Discounts	50% CGT discount if held >12 months	No CGT discount
Expenses	Not deductible unless related to acquisition/disposal	Deductible as business expenses
Record-keeping	Basic CGT records	Full business-style accounting

Examples of Taxable Events

Selling crypto for AUD
Swapping tokens (e.g. ETH to SOL)
Using crypto to buy goods/services
Gifting crypto
Earning crypto through staking, airdrops, or forks (income on receipt, CGT on disposal)
Using DeFi platforms or wrapping tokens (CGT events)

Record-Keeping Essentials

You must keep:

Dates and values (in AUD) of every transaction
Purpose (buy, sell, swap, gift)
Wallet addresses and transaction IDs
Fees and associated costs

Tip: Use crypto tax software like Koinly or CoinTracking to simplify compliance.

ATO Surveillance

The ATO receives data directly from Australian crypto exchanges and uses data-matching programs to track undeclared gains. Anonymous wallets? Not so anonymous anymore.

FAQs: Crypto Tax in Australia

Do I pay tax if I just hold my crypto?

Not until you dispose of it (sell, swap, gift, spend). That triggers a Capital Gains Tax (CGT) event.

What if I trade crypto daily?

If your trading is regular, structured, and profit-driven, the ATO may classify you as a trader, and you’ll be taxed as a business.

Can I claim losses?

Yes. Capital losses can offset capital gains. If you’re a trader, business losses may apply against other income if rules are met.

Is staking taxable?

Yes. Staking rewards are taxed as income when received, and CGT applies when you later sell or swap the tokens.

What about NFTs?

NFTs are treated like crypto. Buying and holding is okay, but any sale, swap, or use is a CGT event.

Do I need to register an ABN to trade crypto?

Only if you’re carrying on a business. Most casual investors don’t need an ABN.

Conclusion

Whether you’re a long-term HODLer or a rapid-fire trader, your tax obligations are real—and growing. The ATO is equipped with powerful tools and third-party data to track your activity. Knowing whether you’re classified as a crypto investor or a trader can make a significant difference at tax time. Stay compliant, keep records, and consider speaking to a tax professional if your crypto activity has become more than just a hobby.

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How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Camden Professionals

What are your tax obligations if you own cryptocurrency

What is Cryptocurrency?

Cryptocurrency, commonly referred to as crypto, is a digital or virtual currency. Unlike traditional currencies, it is not controlled by any central authority, and there are no physical coins or notes involved. Transactions are purely digital, making crypto distinct from conventional money. Since crypto is considered an asset, it is subject to different tax regulations compared to money. What are your tax obligations if you own cryptocurrency?

How is Cryptocurrency Tracked?

Cryptocurrency transactions are recorded in a blockchain, a digital ledger that stores all transactions across multiple copies worldwide. This ledger is decentralized, meaning it is not managed by any bank, government, or company. Each copy of the ledger contains the same transaction history, ensuring transparency and security.

Given the Australian Taxation Office (ATO) has been focusing on crypto in recent years, it’s crucial to understand the tax implications of owning cryptocurrencies. If you have sold, bought, or earned interest from crypto during the financial year (1 July – 30 June), you must declare these transactions on your next tax return.

How is Crypto Taxed in Australia?

An important term to understand for your tax return is “dispose.” This means to sell, gift, trade, exchange, convert, or use your crypto to buy things. Any such transaction is considered a disposal of cryptocurrency.

The ATO taxes cryptocurrency as a “capital gains tax (CGT) asset.” This requires you to declare all transactions where you traded, sold, or used crypto. The ATO does not classify crypto as money or foreign currency but as property, which makes it subject to capital gains tax.

How Does the ATO Know About Your Crypto?

If you have an account with any Australian cryptocurrency provider, the ATO likely already has your data, possibly dating back to 2014. The ATO collects information from crypto exchanges and wallet providers and continues to expand its data sources. Using foreign exchanges does not exempt you from ATO scrutiny.

How Much Tax Do You Pay on Crypto Gains?

A crypto gain, or “capital gains event,” occurs when you dispose of your cryptocurrency. A capital gain is the difference between the value when you acquired the crypto and when you disposed of it. If the proceeds exceed your cost, you have a capital gain. The cost base includes the purchase price and any related acquisition or disposal fees. The tax amount depends on your individual tax circumstances.

What Happens If You Made a Loss?

Even if you incur a loss, you must report it on your tax return. Reporting losses can benefit you by potentially reducing your overall crypto taxes through capital loss claims. Consulting a registered tax agent is advisable to ensure accurate reporting and avoid costly mistakes.

Are Crypto-to-Crypto Trades or Swaps Taxed?

Yes, any swap or exchange of cryptocurrencies is a taxable event in Australia. For instance, exchanging Bitcoin for Ripple is treated as a disposal of Bitcoin at its market price at the time of the exchange.

Do You Have to Pay Tax if You Transfer Crypto Between Wallets?

Transferring crypto between your own wallets does not incur tax, provided you own both wallets. However, you must maintain records of the original cost of the transferred coins. Personal transfers do not affect your capital gains or losses records.

How to Prepare Your Cryptocurrency Tax Return

To lodge your crypto tax return, you will need:

A record of all crypto purchases, sales, and interest earned.
A crypto tax report from your provider (e.g., Koinly or Crypto Tax Calculator) showing your profit/loss and capital gains for the financial year.
Records of original costs for coins transferred between your wallets.
All personal income tax items for your tax return.

Crypto tax can be complex, so it’s best to seek advice from a tax expert to ensure you keep accurate records throughout the financial year and correctly lodge your tax return.

—————BOOK YOUR EXCLUSIVE 15 MINUTE ZOOM CONSULTATION————-

We offer a 10-minute no obligation consultation to existing property investors, first home buyers and small business owners who are looking at property investments, business and asset protection. To Book an Appointment simply click here and pick a time and date.

BOOK YOUR ZOOM APPOINTMENT HERE

How can we help? if you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.

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Camden Professionals

Tax tips for cryptocurrency investors

The rise of cryptocurrency as an investment and trading class has been fast-paced and unprecedented. For those unfamiliar, cryptocurrency (or ‘crypto’) is a digital currency that is traded via online platforms only and often has no physical or tangible presence. It’s unique in that transactions are not verified in a centralised location (such as buying and selling shares on the Australian Stock Exchange) rather transactions are verified and handled utilising the blockchain which is a decentralised system made up of networks of computers all around the world.

Because of the rate of change in the crypto space, the ATO was lagging in providing guidance and crypto investors/traders have often felt frustrated at the lack of ATO information available to follow to ensure they were compliant.

Always use a crypto tax software tool to track your transactions

There are many online systems for your crypto holdings and transactions and this should be number one on the priority list, as this will save either many hours or higher costs when it comes to tax time. Without a robust system, you’ll either be manually calculating every single transaction in an excel spreadsheet or paying your accountant additional fees to do so. You also risk missing transactions and being subject to ATO audit if they find you have not disclosed your transactions in your tax return.

There are a number of software programs available, some of the below offering a free subscription of up to 200 transactions per year, and paid offerings starting as low as $60 per year:

Koinly
CoinLedger
CryptoTaxCalculator
CoinTracking
TokenTax

What is a CGT Event?

A common mistake is to only report a CGT event when there is a conversion back to currency (e.g. AUD), this is incorrect and is a heavily scrutinised area at the ATO.

For example:

01/06/2023 – You buy 1 Bitcoin for $40,000 AUD
19/06/2023 – You use 1 Bitcoin and exchange it for 15 Ethereum (market value of 15 Ethereum at the time is $50,000 AUD)
03/07/2023 – You sell 15 Ethereum for $45,000 AUD (transfer back to currency)

In the example above, it’s often thought that a CGT event for tax purposes only occurs at the point where 15 Ethereum is transferred back to AUD, and therefore there is a capital gain. This is not correct.

The first CGT event occurs on the day the Bitcoin is transferred to Ethereum, and therefore a $10,000 capital gain occurs in FY2022/2023 tax year.

The second CGT event occurs on the day the 15 Ethereum is transferred into $45,000 AUD. This is a $5,000 capital loss (but is in a new tax year, so will not be reported until the FY2023/2024 tax return.

In the example above, it is important to note timing, and tax will need to be paid on the $10,000 capital gain, and then a $5,000 capital loss can be claimed the following tax year. Therefore even though overall it appears as though there has only been a $5,000 gain, because of the timing of CGT events, it is separated into a $10,000 gain in one tax year, followed by a $5,000 loss in the next year.

The CGT general discount still applies to crypto as it does all asset classes, and therefore a 50% discount on the capital gain applies if the asset is held for 12 months or more.

Staking

Staking has risen in popularity and is the act of locking in your current crypto holdings to validate transactions in the blockchain. If you participate in staking, you will be rewarded with additional tokens or crypto coins. The receipt of these tokens need to be declared as ordinary income (not capital gains) at the market value at the time you receive the additional tokens/coins.

Trading vs Capital Account

This is an area that can catch taxpayers out. If you take steps that determine you are a ‘trader’, which is actively trading crypto on a short-term basis, with aspects that are more like a business than an investor, then all income and expenses are treated like a business rather than declared as capital account (CGT). This is the same as share trading vs share investing.

Exemption for ‘Personal Use Asset’

The ATO defines Personal Use Assets as an asset kept mainly for personal use only. An example of this could be using Bitcoin to purchase personal use goods or food and drink. In a scenario such as buying earphones from an online store that accepts Bitcoin, CGT does not apply to the use of crypto (assuming it is under $10,000), as it is being used as a form of currency as opposed to an investment to make a profit.

ATO Data-Matching

The ATO has announced crypto as an area of increased scrutiny due to the nature and volume of transactions and are undertaking increased data-matching.

What this means is crypto exchanges that share data with the ATO can contain transactions that you have undertaken, and will be pre-filled in your tax return, or made available to your tax accountant as a reminder to report CGT events if they apply.

Therefore, it is important you disclose all crypto activity in your tax return, or to your tax accountant, as penalties for tax avoidance can be an additional 75% of the tax liability on top of the tax itself.

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Camden Professionals

Cryptocurrency and SMSF’s – What to look out for

Many Australians are increasingly incorporating cryptocurrency into their Self-Managed Super Funds. (SMSF’s), but there are complexities to look out for. According to the ATO, SMSF’s held $227 million AUD in cryptocurrency assets on 31 December 2021, with forecasts that this amount continues to grow.

Investing cryptocurrency in SMSF’s is an emerging trend and there are important things to look out for. Providing evidence asset ownership and activity for the purposes of satisfying the sole purpose test can be complicated and investors should be aware of the nuances involved. If you are considering incorporating Cryptocurrency into your SMSF, you should be aware of the following and obtain advice from your accountant and financial planner.

SMSF’s & Crypto Assets

While SMSFs are not prohibited from investing in crypto assets, the investment must:

be allowed under the fund’s trust deed
be in accordance with the fund’s investment strategy
comply with the same regulatory requirements as apply to other investments – as set out in the Superannuation Industry (Supervision) Act (SISA) and Superannuation Industry (Supervision Regulations (SISR).

For tax purposes, crypto assets are not a form of money but are capital gains tax (CGT) assets. It is important for SMSF’s holders to seek independent professional advice before investing in crypto assets. When acquiring or disposing of crypto assets, SMSFs must also keep full records of their crypto transactions.

SMSF Investment Strategies and governing rules

An SMSF’s investment strategy outlines its investment objectives and specifies the types of investments it can make. Before investing in crypto assets, SMSF trustees and members should consider the level of risk of the investment. Trustees and members may then review and, if necessary, update their fund’s investment strategy to ensure the investment being considered is permitted. Trustees and members also need to ensure that investments in crypto assets are allowed under the SMSF’s trust deed.

Ownership and separation of assets

To trade in cryptocurrency, you need a unique encrypted code, known as a wallet. The wallet essentially acts as the address which transactions are sent between. An SMSF needs its own wallet, entirely separate to any that you may have in your name for personal cryptocurrency investing.

Any investments made into cryptocurrencies must be identified as belonging solely to the SMSF, and not mixed in with personal assets.

As wallets are virtual and only identifiable via an IP address, it can be difficult for the fund to have the asset registered in any name. Trustees wanting to invest in cryptocurrencies need to make sure the auditors of the SMSF can identify the following:

Trading history for the wallet at the IP address. This needs to match up precisely with the transactions from the bank account of the fund
To ensure the accounts are easily traceable, it’s recommended the SMSF opens a separate bank account for cryptocurrency trading. Auditors will check that the transactions are for the sole benefit of the SMSF, and not an individual

As the wallet can’t demonstrate that the investment is held for the SMSF only, a deed of trust or similar document confirming the fund is the beneficial owner of the cryptocurrency, is required.

Valuation of crypto assets

SMSFs must ensure their investments in crypto assets are valued in accordance with ATO valuation guidelines for SMSFs. The value in Australian dollars will be the fair market value which can be obtained from a reputable digital currency exchange or website that publishes its rates publicly.

The value of crypto assets can change constantly. For the purpose of calculating member balances at 30 June, the ATO will accept the 30 June closing value published on the website of a crypto exchange that reports on historical crypto values.

Related-party transactions

SMSFs are prohibited from intentionally acquiring assets from related parties with a few exceptions. The exceptions include listed securities and business real property, when acquired at market value. Crypto assets are not ‘listed securities’ so don’t fall within the exceptions. Therefore, crypto assets cannot be acquired from a related party. It follows that SMSF trustees and members – being related parties of the fund – can’t make in specie contributions or other transfers of crypto assets to the fund.

Sole-purpose test

An SMSF must be maintained for the sole purpose of providing retirement benefits to trustees and members, or to their dependants if a member or trustee dies before retirement.

It is unlikely that an SMSF will meet the sole-purpose test if trustees or members, directly or indirectly, obtain a financial benefit when making investment decisions and arrangements. For example, it may be a breach of the sole-purpose test where affiliate fees or commissions associated with the fund’s crypto asset investment are paid to a trustee or member personally.

Pension or benefit payments

Where a trustee or member satisfies a condition of release, the SMSF can make an in-specie lump sum payment by way of transfer of crypto. The transfer of crypto assets amounts to a crypto transaction and a CGT event happens.

Pension payments to trustees or members, however, must be made in cash. Trustees and members will need to consider the fund’s trust deed and any CGT implications associated with the transfer of assets such as crypto assets. If the bitcoin is sold while members of the SMSF are in pension phase, the gain is exempt from any tax consequences.

If you would like further advice about cryptocurrency and SMSF, please contact our office for assistance.

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Camden Professionals

Register your .au domain! Before 20 September 2022

20 September 2022 is the cut-off to register for your .au direct domain. The .au domain is the new, general purpose, shorter Australian domain name option.

If you do not register the direct match of your existing domain for the direct .au domain, you risk your brand equity being consumed by someone else, rivals redirecting your clients to their products and services, squatters holding the domain, or cybercriminals impersonating your business. The opening of the new .au domain is the single biggest shift in Australian cyber real estate in decades and the risks for business are high.

If you are registering:

an exact match of your existing domain name, for example.com.au or net.au; and
you held your domain name prior to 24 March 2022

you have priority access but only up until 23:59 UTC on 20 September 2022 (9:59am AEST on 21 September). Once this deadline has passed, the .au direct domain name will be available to anyone with a connection to Australia to register from 21:00 UTC 3 October 2022 (8:00am AEDT 4 Oct).

While you can register for the .au domain through any number of providers, the most efficient method is to utilise your existing provider. To do this, you will need your domain’s access information. If these details cannot be found, for example, the details were held by a former staff member, it can take some time to recover them so do not leave the registration process until the last minute.

Once you have applied for your matching .au domain, if your application is uncontested, you will be able to use the .au direct name soon after applying for priority status.

What happens if .com.au and .net.au both apply for the .au name?

If you share a domain name with another entity, for example, one entity owns.com.au and the other .net.au, the right to register the .au domain will cascade according to priority.

Category 1 are those that secured the domain on or before 4 February 2018. Category 1 applicants have priority over,
Category 2 applicants who registered their domain after 4 February 2018.

If the name is contested by a Category 1 and a Category 2 applicant, the Category 1 applicant will secure the name.

If two Category 2 applicants apply for the name, the name is allocated to the applicant with the earlier domain license creation date. But, it gets tricky when two Category 1 applicants apply for the name. In these circumstances, both parties must agree on the allocation or the name remains unallocated.

Please ensure you contact your domain name provider and follow their guidelines for registering your .au domain name.

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Cryptocurrency and the ATO | Data matching and Tax Liability

More than 1 million Australians own cryptocurrency, and the Australian Taxation Office has them in its sights and knows about your crypto assets.

5% of Australian adults own at least one cryptocurrency, while more than one in 10 Australians under 35 hold assets such as bitcoin, Ethereum, ripple, Cardano, dogecoin, Shiba inu and Solana according to Roy Morgan Research polling.

Over one million taxpayers will have a message appear as a reminder when they prepare their tax returns saying they may have capital gains or capital losses from crypto to declare according to the ATO.

We have prepared a short list of FAQs which explains how the ATO deals with Cryptocurrency.

Does the ATO know if I have crypto investments?

Yes. The ATO receives information from share registries and crypto asset exchanges and has had a cryptocurrency data-matching program operating since April 2019.The data is used to identify the buyers and sellers of crypto assets, including addresses, phone numbers, names, bank accounts, transaction dates and coin types.

Is Cryptocurrency taxed?

Yes. If you sell an asset, including your cryptocurrency, you will need to calculate either your capital gain or capital loss, and then record those details in your tax return. The ATO has you in their sights and will be paying particular attention to what investors do with their cryptocurrency this tax season.

Transactions made via online exchanges, share registries are captured by the ATO’s data collection processes and the ATO is aware of buying, selling or exchanging digital coins and assets, so its important people understand what this means for their tax obligations.

This year it is likely that many cryptocurrency investors will be lodging losses after recent interest rate increases and economic instability.

Crypto markets in particular have taken a hit after reaching record highs of nearly $3 trillion in November 2021 prior to dipping below $1 trillion.

How is cryptocurrency taxed?

The ATO will tax cryptocurrency assets such as coins and non-fungible tokens as capital gains tax (CGT) assets. However, investors who stake cryptocurrency, or who lock their existing tokens to help validate transactions on the blockchain and in exchange receive additional tokens, will have those rewards taxed as ordinary income. This tax is calculated based on the value of the staked tokens (once converted into Australian dollars) when they were received.

Broadly, cryptocurrency is taxed at the same rate as your income before the 50 per cent CGT discount is applied to investments held for at least a year.

Can I use cryptocurrency losses to offset tax?

Crypto investors and traders sitting on big losses from the recent market meltdown will be under intense scrutiny from the Australian Taxation Office to make sure they are making lawful deductions, particularly those who bought at the height of the boom, say tax specialists.

Crypto stocks have lost on average around 70 per cent over the last eight months as the heavily hyped bitcoin and other digital currencies went from boom to bust in a wave of liquidations, withdrawal freezes, trading halts and bailouts.

If you’ve sold your cryptocurrency assets for less than you bought them for, you have a so-called capital loss. You can use this to offset other capital gains – that is, investment gains you’ve made by selling investments for more than you purchased them.

But you must have made the loss. Many people regard certain cryptocurrency transactions as ‘paper’ gains or losses, but the ATO regards them as very real.

Any realised capital losses on crypto investments can be offset against capital gains from other investments to reduce assessable capital gain
Those carrying on a crypto trading business should consider recording closing stock (inventory) at market value as opposed to cost as this will reduce/increase your losses/profits
Losses from your crypto trading and speculating may be able to be offset against other earned income.
Running a crypto trading business through a company that incurred losses this financial year could create an opportunity to access the “loss carry back offset”, where eligible, and claim a tax refund this year for tax paid in prior years.

How do you work out what capital gain or losses are?

You will need to convert the value of your cryptocurrency assets into Australian dollars. The ATO suggests investors use the exchange rates provided by digital currency exchanges at the time of the transaction to do this. Investors can then work out the CGT using the ATO’s online calculator and record-keeping tool.

Generally, your CGT will be calculated as your total capital gains less any capital losses and less any entitlement to any CGT discounts on your gains.

What is the difference between a Crypto investor or trader?

Most people fall into the investor category and have the CGT rules applied to them. If they’re an investor, it means they’re holding cryptocurrency as an investment. These investors will be taxed under CGT rules.

If you’re transacting large amounts of cryptocurrency with a goal of maximising profits, rather than having a buy-and-hold approach to cryptocurrency, then you’re likely to be considered a trader. That means the proceeds of your trades will be taxed under trading stock rules, rather than CGT rules, with the proceeds assessed as income.

What information do I need to fill in my tax return as a crypto investor?

This is important as you need to create a list/spreadsheet of the following:

Dates of your transactions and the value of the cryptocurrency in Australian dollars at the time of transaction
Provide detail the purpose of the transaction
The details of the other transacting party

Investors should consider using digital record-keeping solutions and consult with your accountant to make sure they’re getting things right. Receipts, exchange records, digital wallet records and keys will come in handy here.

If you are uncertain about how CGT impacts your cryptocurrency assets, please reach out to our office for advice.

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Cryptocurrency: Outlook,Taxation and more

In 2021, we saw cryptocurrencies achieve a new level of mainstream popularity, with entire countries, institutions and investors getting involved in the space. While crypto and the blockchain technology that underpins it is undoubtedly one of the most exciting technological developments of our time, it is easy to overlook the nascency of the sector and its vast potential.

We have seen great developments in the sector in just the last few years, but crypto natives know that the best has yet to come. Whether it be regulators providing the appropriate framework for the industry to grow, or more investors coming on board,2022 will see unprecedented growth for cryptocurrency — both in Australia and globally.

Cryptocurrency will be regulated by 2022-23

The popularity of cryptocurrency will continue to rise, and we can expect to see the foundations of a formal regulatory framework for the industry in Australia. Last year, we saw recommendations from the senate committee inquiry demonstrating a growing commitment to regulating the local cryptocurrency space. There is also now a trend that will see major institutions proactively seeking out business opportunities in the cryptocurrency space. This trend is only likely to accelerate in 2022, and there is no reason to believe that the cryptocurrency market will be saturated anytime soon. Blockchain technology, and the wide variety of ways in which both institutions and the retail public can participate in the market, is almost certainly still in its early stages.

How are cryptocurrencies taxed?

Cryptocurrencies, like Bitcoin, are independent and not regulated by any central authority. Until recently, these digital currencies were not treated in the same way as cash for tax purposes in Australia. New legislation passed by Parliament last month seeks to change all that by removing GST from currency exchanges.

Under GST law, a 10% GST applies to supplies of goods and services. Money receives special treatment because it’s a medium of exchange and not something for final private consumption. Up until recently, the Australian Taxation Office (ATO) took the view that cryptocurrencies did not meet the definition of ‘money’ because they have an independent value rather than being a debt, credit or promise to make a payment, and they don’t meet the definition of money under GST law.

The impact was that when people used digital currencies as payment, this could trigger GST twice; once on the goods or services being purchased, and also on the supply of the digital currency to the other party. So, the Government has changed the definition of money for GST purposes from 1 July 2017. Now, trades of cryptocurrency are disregarded for GST purposes, unless the trade is for a payment of money or digital currency (for example you are in the business of trading cryptocurrencies). Cryptocurrencies are now taxed in a similar way for GST purposes to foreign currency.

But it’s not just GST to consider. Income tax and capital gains tax (CGT) issues might also arise in transactions involving cryptocurrency depending on how and why you are using it.

Individuals trading in cryptocurrencies

If you hold cryptocurrency for your own personal use and you paid $10,000 or less to acquire the digital currency, then there is generally no tax impact when you dispose of the currency. However, if the cryptocurrency is not held for your personal use and enjoyment then there are some tax issues that can arise.

If the cryptocurrency is held as an investment (i.e., not for personal use and enjoyment) or the cost is more than $10,000 then CGT might apply when you sell or exchange the currency. The taxing point for CGT purposes is normally when a contract is entered into. If there is no contact (which is often the case with digital currencies) the taxing point is when ownership changes.

The line between personal use and investment can be very thin. It will be difficult to argue that you hold cryptocurrency for personal use if you use it irregularly to purchase goods and services and you made a large gain from holding and trading it.

Businesses trading in cryptocurrencies

If your business accepts cryptocurrency as payment for goods or services, these payments are treated in the same way as any other. That is, if your business is registered for GST, the price paid by the person paying in the digital currency should include GST. Likewise, if you purchase goods or services for use in your business then you should generally be able to claim GST credits on the transaction in your activity statement, even if you used digital currency to make the purchase.

If you are in the business of trading cryptocurrencies and your business is registered for GST, you charge GST on the exchange of the currency and claim the GST credits in your activity statement. The new legislation does not prevent GST from applying to the supply of cryptocurrencies in exchange for a payment of money or digital currency.

It is also possible that someone could hold cryptocurrency as trading stock if it is held for the purpose of sale or exchange in the ordinary course of a business. Any gains from the trades are then taxed in the business’s income tax return (or individual tax return for sole traders). CGT concessions and exemptions are not generally available in this case. If you are in the business of trading cryptocurrencies, that is, you approach the trading in a business-like manner, then you can generally claim losses and other business expenses. The tax laws can be complex in this area and it’s important to ensure that you get the right advice.

Can your SMSF invest in cryptocurrencies?

Arguably, an SMSF can invest in cryptocurrencies but there are several factors to consider before investing. Cryptocurrencies are a high-risk product as they are blockchain driven and unregulated. While there have been numerous stories in the media about massive gains made on the currency by early investors, the price fluctuates, cryptocurrencies face new competitors, and “hard forks” occur – where the blockchain is split and forms a permanent divergence from the original. Bitcoin, for example, has broken into Bitcoin, Bitcoin Cash and now Bitcoin Gold. The danger is that you end up on the wrong fork. There is also the danger of hacker’s breaching your fund’s digital wallet and stealing your investment.

Trustees of the fund need to ensure that any investment in cryptocurrency is in line with the investment strategy of the fund, the Trust Deed allows for it at the time the investment is made, and it is an appropriate investment. In particular, the sole purpose test in the Superannuation Industry (Supervision) Act 1993 requires that the fund is maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement. Trustees need to ensure that the risk associated to these currencies is in the best interests of the fund. A minute documenting the decision to invest in the cryptocurrency would be beneficial.

For tax purposes, gains and losses in the fund are treated in the same way as other assets in the fund. That is, CGT may apply to any gains made on the sale or exchange of the currency.

If your fund invests in cryptocurrency, there are a few practical issues. Your SMSF auditor needs to confirm the ownership, existence, and value of the cryptocurrency. As a result, the digital wallet for your currency should be in the name of your fund or the corporate trustee. You need to ensure that your personal assets, and the assets of your fund, are kept separate at all times. Once money is deposited into your fund, it may not simply be a case of being able to withdraw these amounts, and they may be ‘stuck’ in the fund until a condition of release is met, which usually means attaining retirement age. And, you need to be able to trace your transactions to identify trades, the value of the trade, and the time and date they occurred.

Documentation to keep the ATO happy

If you are using cryptocurrencies for whatever purpose, it’s important to keep records of the transactions to ensure that if the ATO challenges your tax treatment of the currency, you can prove your position.

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Tax treatment of cryptocurrencies – How the ATO deals with it.

The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.

The creation, trade and use of cryptocurrency is rapidly evolving. This information is our current view of the income tax implications of common transactions involving cryptocurrency. Any reference to ‘cryptocurrency’ in this guidance refers to Bitcoin, or other crypto or digital currencies that have similar characteristics as Bitcoin.

If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances. Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.

If you have dealt with a foreign exchange or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.

1. Transacting with cryptocurrency

A capital gains tax (CGT) event occurs when you dispose of your cryptocurrency. A disposal can occur when you:

sell or gift cryptocurrency
trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
convert cryptocurrency to fiat currency (a currency established by government regulation or law ), such as Australian dollars, or
use cryptocurrency to obtain goods or services.

If you make a capital gain on the disposal of cryptocurrency, some or all of the gain may be taxed. Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded. If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.

2. Exchanging cryptocurrency for another cryptocurrency

If you dispose of one cryptocurrency to acquire another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. Because you receive property instead of money in return for your cryptocurrency, the market value of the cryptocurrency you receive needs to be accounted for in Australian dollars. If the cryptocurrency you received can’t be valued, the capital proceeds from the disposal are worked out using the market value of the cryptocurrency you disposed of at the time of the transaction.

3. Record keeping for cryptocurrency

It is vital to keep good records for all your transactions with cryptocurrency, whether you are using cryptocurrency as an investment, for personal use or in business. You need to keep the following records in relation to your cryptocurrency transactions:

the date of the transactions
the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).

The sorts of records you should keep include:

receipts of purchase or transfer of cryptocurrency
exchange records
records of agent, accountant and legal costs
digital wallet records and keys
software costs related to managing your tax affairs

Keeping good records will make it easier to calculate and meet your tax obligations, and if you are in business, they will assist you to manage your cash flow and see how your business is doing. You can use an accountant or third-party software to help meet your record-keeping obligations and working out your tax.

4. Cryptocurrency businesses

If you hold cryptocurrency for sale or exchange in the ordinary course of your business the trading stock rules apply, and not the CGT rules. Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income, and the cost of acquiring cryptocurrency held as trading stock is deductible.

Examples of businesses that involve cryptocurrency include:

cryptocurrency trading businesses
cryptocurrency mining businesses
cryptocurrency exchange businesses (including ATMs).

Not all people acquiring and disposing of cryptocurrency will be carrying on businesses. To be carrying on business, you will usually:

carry on your activity for commercial reasons and in a commercially viable way
undertake activities in a business-like manner – this would typically include preparing a business plan and acquiring capital assets or inventory in line with the business plan
prepare accounting records and market a business name or product
intend to make a profit or genuinely believe you will make a profit, even if you are unlikely to do so in the short term.

There is also usually repetition and regularity to your business activities, although one-off transactions can amount to a business in some cases.

Whether you are carrying on a business and when the business commences are important pieces of information. If you’re still setting up or preparing to go into business, you might not yet have started the business.Money received (or property received) prior to a business being carried on is not generally assessable income. Likewise, you can’t claim deductions incurred prior to the business being carried on.

Example 1

Sachin is in the business of trading cryptocurrency. On 15 December 2017, he purchases 1,500 Coin A for $150,000. On the same day, he sells 1,000 Coin A for $200,000. As Sachin holds the cryptocurrency for sale or exchange in the ordinary course of his business, Sachin can claim a deduction for $150,000 for the acquisition for Coin A and declares income of $200,000 for the later sale of Coin A.

5. Using cryptocurrency for business transactions

If you are carrying on a business that is not a cryptocurrency business, but use cryptocurrency in your activities you need to account for cryptocurrency as you would for other assets or items used in your business.If you receive cryptocurrency for goods or services you provide as part of your business, you need to include the value of the cryptocurrency in Australian dollars as part of your ordinary income. This is the same process as receiving any other non-cash consideration under a barter transaction. One way of determining the value in Australian dollars is the fair market value which can be obtained from a reputable cryptocurrency exchange.

Where you purchase business items using cryptocurrency (including trading stock) you are entitled to a deduction based on the market value of the item acquired.

For further information you can access the Federal Government Smart Money website here

https://moneysmart.gov.au/investment-warnings/cryptocurrencies-and-icos

Source: ATO 27 July 2021

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Tax treatment of cryptocurrencies – How the ATO deals with it.

Tax treatment of cryptocurrencies – How the ATO deals with it.

1. Transacting with cryptocurrency

5. Using cryptocurrency for business transactions