The end of financial year is fast approaching, which means you need to be aware of your tax responsibilities – especially if you buy, sell, or invest in cryptocurrency.
While tax responsibilities vary depending on your individual circumstances, it’s important to keep records for all of your cryptocurrency transactions.
This means that whether you earned money on crypto this financial year, or lost it during the crypto crash, you’ll still need to lodge it with the Australian Taxation Office (ATO).
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“Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions,” the ATO said.
However, if you have “transacted with a foreign cryptocurrency exchange you may have tax responsibilities in another country".
How to manage tax responsibilities with crypto
According to the ATO, there are three steps Aussie taxpayers can follow to manage their tax responsibilities with cryptocurrencies.
1. Report disposal of cryptocurrency
Australians must report the disposal of cryptocurrency for capital gains tax purposes, which includes:
Exchanging one cryptocurrency for another cryptocurrency
Trading, selling or gifting cryptocurrency
Converting cryptocurrency to a fiat currency, such as Australian dollars
However, transferring cryptocurrency from one digital wallet to another digital wallet is not considered a disposal, as long as you maintain ownership of it.
2. Work out any capital gains tax
If you exchange cryptocurrency for goods, cash or other cryptocurrencies, it is typically considered a disposal for the purposes of capital gains tax (CGT).
Therefore, you may need to include a capital gain or loss in your tax return – meaning you'll need to determine the value of your cryptocurrency purchases and sales in Australian dollars.
A capital gain or loss is the difference between the:
Cost base (the cost of ownership, including the purchase price plus certain other costs associated with acquiring, holding and disposing of it)
Capital proceeds (what you receive or the market value of what you receive) when you dispose of your cryptocurrency.
If you bought cryptocurrency using Australian dollars, the amount you paid is included in your cost base.
If you exchange one cryptocurrency into another cryptocurrency, your cost base is the market value in Australian dollars of the crypto at the time of the transaction.
3. Keep records
According to the ATO, you need to "keep records of all transactions associated with acquiring, holding and disposing of cryptocurrency".
The ATO urges all Australians to keep records of buying (acquiring), owning (holding) and disposing of crypto and to keep them for five years after disposing of the cryptocurrency.
Aussies can keep accurate crypto records ahead of tax time by setting up a record-keeping system, such as a spreadsheet or specialised software (CoinTracker, TaxBit, and more).
Personal use assets versus capital gains
Some capital gains or losses that arise from the disposal of a cryptocurrency that is a personal use asset may be disregarded.
Cryptocurrency is a personal use asset if it is kept or used mainly to purchase items for personal use or consumption.
Cryptocurrency that is kept or used as an investment, part of a profit-making scheme or in the course of carrying on a business, is not considered a personal use asset and is subject to capital gains.
"Only capital gains you make from disposing of personal use assets acquired for less than $10,000 are disregarded for capital gains tax purposes," the ATO said.