The popularity of the digital currency known as crypto often leads to many questions when it comes to tax time. However, it’s encouraged that you speak with your accountant about your obligations as soon as possible to be prepared for what you are expected to do.
The ATO classifies cryptocurrencies as property, specifically as a capital gains asset. This means that it is taxed under Capital Gains Tax provisions, where a taxpayer gains capital from the disposal of cryptocurrency if the proceeds/profit exceeds what the cryptocurrency initially cost the taxpayer. It must be reported in their assessable income.
If the taxpayer does not make a profit and instead receives a loss for the sale, they will need to report that instead in their assessable income.
There is a commonly held belief that the gains from cryptocurrency if the costs for acquiring the asset were less than $10,000 are tax-free. This is not the case.
In very limited circumstances, a cryptocurrency gain that is less than $10,000 may be classified as a personal-use asset rather than as a capital gains asset. This exemption is usually determined by the Australian Taxation Office’s private rulings according to strict criteria.
Any income derived from the sale or purchase of Bitcoin as an exchange service must be included in the assessable income reported in the tax return lodged at the end of the financial year. The best way to be sure that all of the potential assessable income resulting from cryptocurrency is recorded in next year’s tax return is to maintain immaculate records. You will need to ensure that a record is kept of:
- The date of each transaction
- The amount in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
- Details of the transaction,
- Any associated expenses, like fees and commissions, and
- Details of the other party (the Bitcoin public address is enough).
If you have been involved in the acquisition or selling of bitcoin and want to be sure that you’re prepared for your next tax return, start a conversation with us about your obligations and potential tax liabilities sooner rather than later. If the circumstances around your tax liability change, it will put us in a better position to assist you.