Cryptocurrency is a one type of crypto assets which is a digital representation of value that you can transfer, store, or trade electronically. Generally, cryptocurrencies run without the involvement of a central bank, authority, or government. The same tax regulations that apply to asset transactions in general apply to transactions involving crypto assets.
Here’s what you need to know because the ATO has announced that it will be paying particular attention to cryptocurrency assets during tax season. The following needs to be confirmed by taxpayers to manage tax obligations with cryptocurrency.
Reporting cryptocurrency disposal
Disposal includes the following actions:
- exchanging one cryptocurrency for another.
- trading, selling, or gifting cryptocurrency.
- and converting cryptocurrency to a fiat currency, such as Australian dollars (A$), which is a unit of account defined by law or government regulation.
Taxpayers should note that as long as they retain possession of the cryptocurrency, transferring it from one digital wallet to another is not seen as a disposal therefore not reportable.
Determine Capital Gains and Losses
Capital gain or loss is the difference between the –
- “Cost base” (cost of ownership, which includes the purchase price and a number of other expenses related to buying, keeping, and selling it) AND
- “Capital Proceeds” are what you get when you exchange or sell your bitcoin (or the market value of what you get, or the market value at the time when you exchange one coin to another).
Maintaining the records
For at least five years following the disposal, the taxpayer is required to maintain track of every transaction related to purchasing, holding, and selling bitcoin.
Additional aspects to think about
Additionally, taxpayers should be mindful that any capital gains or losses that result from the sale of a cryptocurrency that is an asset for personal use may be ignored. However, if cryptocurrency is stored or used primarily for any of the following, it is not an asset for personal use:
- as part of a profit-making scheme,
- as an investment, or
- as part of running a business.
A cryptocurrency is more likely to be an asset for personal use when it is purchased and used in a short amount of time to purchase goods for consumption or personal use. For capital gains tax purposes, only capital gains from the sale of personal use assets purchased for under $10,000 are disregarded. However, as this is a complex tax area, you do need to seek independent professional tax advice before you ascertain the capital gain implication. As the leading CPA accountant in Inner West Sydney, Northern Beaches Belrose and Adelaide, we would be able to assist.