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Tax laws around cryptocurrency in Australia

Cryptocurrencies are without a doubt more than just a craze, yet many people continue to have misconceptions about them, and they continue to have questions about their real worth, actual uses, and long-term potential.

In Australia, when someone buys cryptocurrency as an individual, he won’t have to pay tax on it until he sells it. He won’t have to pay CGT on the investment as long as he owns it, then. One can get a 50% discount on the CGT when he holds for more than a year before selling the cryptocurrency.

Tax for cryptocurrency in Australia

The Australian Tax Office does not classify cryptocurrency as fiat money or foreign cash (ATO). Instead, it is viewed as “property,” a CGT asset, by the great majority of investors.

To calculate a capital gain or loss from cryptocurrencies, one must be aware of and keep track of the market value in Australian Dollars at the time of disposal.

How crypto trades are tracked for tax?

The ATO started collecting papers from Australian bitcoin designated service providers, or DSPs, in May 2019 to make sure customers were paying their taxes. These DSPs include brokerage services, payment processors, cryptocurrency exchanges, and more. There is also a data matching program with Australian exchanges.

Additionally, the ATO has access to information on transactions and accounts, such as account status, linked bank accounts, connected wallets, cryptocurrency kinds, amounts in fiat and cryptocurrencies, and more. Data for the 2014–2015, 2019–2020, and succeeding financial years are available from the ATO. ATO identified “record-keeping” and “capital gains from crypto assets” as two of four main priority areas this tax season, increasing its focus on cryptocurrencies ahead of the 2022 tax year.

Tax law for investors and traders in cryptocurrency

Both are described below:

  • Investors

Despite the name and the possibility of constantly “trading” cryptocurrency, the bulk of Australians will fall under the Investor group. If the majority of a person’s bitcoin operations involve using it as a personal investment and the majority of their income comes from long-term gains, they definitely fall under this Investor category.

Capital gains tax, or CGT, is applicable to gains and losses on cryptocurrencies in this situation.

  • Traders

Companies, including lone proprietors, operate businesses related to cryptocurrencies as traders. To be classified as a trader, one must assess the relevant facts and circumstances as well as how the Australian Taxation Office will interpret the activity. One should, at the very least, be: 

  • Keeping the firm running profitably and for business purposes
  • Engaging in activities typical of a business, such as developing business plans and procuring commodities or capital assets in accordance with them.
  • Creating accounting records and marketing the brand of the business.

These are only a handful of the criteria that define what counts as a business activity.

Capital Gains Tax (CGT)

The ATO recognizes digital money as a CGT asset, much like a stock in a corporation, as was before mentioned. Every time one trades, sells, spends, gives away, or has some form of disposal event involving the crypto assets, one must calculate and keep track of the capital gains. We’ll go over the various categories of capital gains events in the section below:

  • Capital gain

Knowing the cost basis is the first step in determining if one has a capital gain. The cost base is, to put it simply, the price one paid for his bitcoin plus any additional fees, such as buy or sale fees.

When one sells, exchange, or give away a CGT asset that he owns and makes a profit, he must pay tax on the capital gain he earned.

  • 12-month CGT reduction

If one maintains a CGT asset for longer than a year, they may be able to utilize the 50% CGT discount (this is also referred to as long-term gains). Individual taxpayers are eligible for a 50% discount, but compliant super funds are only eligible for a 1/3% reduction.

  • Capital losses

When one sells a bitcoin asset for less than what was originally purchased for it, they suffer a capital loss. For instance, a capital loss of $500 would result from purchasing one Ethereum for $1,000 and selling it for $500 six months later. Thankfully, capital losses can offset capital gains. Investors should be aware that if they sell an asset and then rapidly repurchase it in order to realize a capital loss, wash sale restrictions may be applicable and the ATO may reject the loss.

  • The rate of capital gains tax

As an individual investor, if one buys, sells, gives, or otherwise uses cryptocurrencies, his capital gains tax liability will be determined at the same rate as the income tax liability. Those that hold cryptocurrency assets for 12 months or more are qualified for a 50% CGT deduction.

According to the following table, the annual income total will determine how much income tax one owes.

How to calculate capital gains tax and when does it apply?

Let’s look more closely at the one that has an impact on the majority of Australians: CGT, or capital gains tax.

When one gets rid of cryptocurrency, CGT happens. The following frequent occurrences, according to the ATO, could explain this:

  • Trading or exchanging, which takes place most frequently when one cryptocurrency is disposed of for another.
  • Converting cryptocurrencies to fiat money, like the Australian dollar
  • Using cryptocurrencies to make payments for products or services
  • Cryptocurrency exchange or transfer

How to file cryptocurrency taxes?

  1. MyTax

MyTax, which is accessible through one’s MyGov account, makes it simple to file a tax return. By choosing the “Capital gains tax (CGT) linked items” option, one can customize the tax return and declare capital gains or losses (as seen below).

  1. Filling out a printed form

One can declare the CGT on a downloadable form and mail it to the ATO as an alternative to filing his tax return through MyTax. He’ll need to submit two different forms: a CGT form and an income form. One must state any capital gains he has made next to the label “Current year capital gains” if he has any. Any capital losses must also be entered next to the notation “NET capital losses carried over to later income years.”

Who can help with the Australian cryptocurrency tax?

More accountants are now providing taxes services related to cryptocurrencies since they are used for investments and payments more frequently. It’s better to see an accountant.

Swyftx collaborates with Koinly, a trustworthy company that provides Australian taxpayers with crypto tax reporting, to help with this procedure. Koinly offers software that makes it simple to track the profits and losses and translate current transactions into their equivalent in Australian dollars. Koinly can estimate cryptocurrency taxes by safely gaining access to one’s trading data through the synchronizing of the Swyftx account.

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