Let’s talk tax: an overview of crypto taxation in Australia

As we approach another EOFY, cryptocurrency investors in Australia find themselves navigating the complexities of tax obligations amidst a landscape of evolving innovation and regulation.

As part of a surveillance effort¹ announced in April this year, the Australian Taxation Office (ATO) is ramping up its scrutiny of crypto traders.

The requirement mandates that crypto exchanges provide transaction activity data to assist in auditing compliance with tax obligations on crypto sales.

With nearly 1 in 3 Australians (31.6%)²holding or having held cryptocurrency in their portfolios, it is increasingly important for individuals and businesses to stay up to date on their crypto tax obligations.

How crypto is taxed in Australia

The ATO treats cryptocurrencies as property rather than currency. This classification means that for tax purposes, cryptocurrencies are subject to the same capital gains tax (CGT) rules that apply to other assets like real estate or shares.

This has significant implications for anyone buying, selling, or swapping cryptocurrencies (e.g., BTC to ETH) or earning crypto through activities such as mining or staking². CGT is applicable when you sell, swap, or dispose of your cryptocurrency.

However, according to the ATO, Australian tax residents benefit from tax-free thresholds and allowances that also apply to cryptocurrencies:

1. Tax-free threshold³: Income tax is payable only when your total yearly income exceeds $18,200. This applies to income from cryptocurrencies as well.

2. Long-term CGT discount⁴: Holding crypto for over a year before selling can qualify you for a 50% discount on CGT.

3. Personal use asset⁵: Using crypto for personal expenses can exempt you from CGT under certain conditions.

4. Acquiring crypto from gift or hobby⁶: Crypto received as a gift or from hobby-level mining is not taxable.

5. Donating crypto to registered charities⁷: Donations to registered charities with Deductible Gift Recipient (DGR) status can provide tax benefits. However, while you may obtain a tax deduction, you could also trigger a Capital Gains Tax (CGT) on the cryptocurrency that you donate.

These provisions offer flexibility and tax benefits, making it easier for Australians to manage their crypto investments within the tax system.

Essential reporting requirements

Understanding and fulfilling certain reporting requirements can help avoid potential issues with the ATO and ensure compliance with tax laws¹.

Firstly, staying informed on regular updates and guidelines from the ATO regarding the tax treatment of cryptocurrencies is critical.

As cryptocurrencies continue to evolve, so too will the regulatory and tax landscape. The ATO closely monitors developments in this space and regularly updates its guidance to reflect these changes.

Maintain detailed records of all your crypto transactions, including dates, amounts in Australian dollars (AUD), and the purpose of each transaction.

Calculate and report any capital gains or losses from disposing of cryptocurrencies and declare income from mining and staking as ordinary income in AUD when received.

Utilising reliable record-keeping tools and software such as Koinly, Crypto Tax Calculator, Syla, or similar platforms can automate the calculation of capital gains and losses, ensuring accurate reporting.

Include your cryptocurrency transactions and income in your annual tax return. The ATO provides specific labels on tax forms (such as the Individual Tax Return form) where you should report your crypto-related income and capital gains.

Common mistakes to avoid

It's crucial to report your transactions correctly to avoid penalties or audits. One of the most critical mistakes crypto investors make is ignoring smaller transactions. Every transaction, regardless of size, is a taxable event and must be meticulously recorded. Misreporting values can also be a common misstep. Using reputable sources for AUD exchange rates at the time of transactions is the best way to avoid this issue.

Further, overlooking the requirement to report income from various decentralised finance (DeFi) activities such as airdrops, hard forks, referral rewards, or earnings from activities like "learn/play to earn" games and token swaps can result in penalties, interest charges, and potential audits.

Be aware that the ATO has been proactive in addressing crypto tax evasion. They have implemented data-matching programs with cryptocurrency exchanges to ensure taxpayers correctly report their crypto transactions and have announced intentions to further tighten their efforts in this regard.

Useful resources to consider

Several dedicated crypto tax software platforms available in Australia are designed to streamline the process of calculating and reporting crypto taxes.

Platforms such as Crypto Tax Calculator, Koinly, and Syla each offer varying levels of functionality and support, tailored to different user needs.

At BTC Markets, we often host educational webinars with each of these providers to offer valuable insights and updates on cryptocurrency taxation.

For individuals or businesses with complex crypto transactions, engaging a professional tax advisor or accountant with expertise in cryptocurrencies could be more suitable.

While the taxation of cryptocurrencies may seem daunting, it's a necessary step towards integrating digital assets into the broader financial system.

By staying informed and seeking professional advice when needed, Australians can navigate this complex terrain with confidence and clarity.

1 (VIEW LINK)

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4 Tax-free threshold | Australian Taxation Office (ato.gov.au)

5 CGT discount | Australian Taxation Office (ato.gov.au)

6 Crypto asset as a personal use asset | Australian Taxation Office (ato.gov.au)

7 Transactions – acquiring and disposing of crypto assets | Australian Taxation Office (ato.gov.au)

 8 Gifts and donations of crypto assets | Australian Taxation Office (ato.gov.au)