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How crypto is taxed in Australia: All you need to know

·4-min read
Photo of woman holding two commemorative cryptocurrency Bitcoins over her eyes.
If you're seeing cryptocurrency dollar signs, make sure you understand your tax liabilities. (Source: Getty)

If you're looking to join up to 1 million Aussies who have invested in Bitcoin and other cryptocurrencies, it's important to understand you will be taxed on any profits you make.

Those who jumped in before the unprecedented rally of 2021 would have enjoyed some massive gains but the recent crash - which has seen Bitcoin drop more than 50 per cent since November last year - provides a tantalising prospect for new investors.

But as with all investments, it's important to carry out your own thorough research and make sure to read the fine print.

Whether you buy, sell or invest in cryptocurrency, you need to understand your tax responsibilities.

Here's a set of guidelines to help you make an informed decision.

The ATO is watching you

The Australian Taxation Office (ATO) estimates approximately 500,000 to 1 million Australians own cryptocurrency.

First of all, if you have an account with an Australian cryptocurrency designated service provider (DSP), the ATO is already aware of your crypto transactions thanks to the Know Your Customer (KYC) information you provided when signing up for any Australian exchange or wallet.

The ATO has a data-sharing program with all Australian exchanges and knows when crypto owners buy, sell, or earn interest from cryptocurrency in a financial year.

So, it's essential that you declare your crypto investments and earnings on your income tax return.

Failing to do so could result in penalties for tax evasion.

How cryptocurrency is taxed

The Australian Government does not consider Bitcoin and other cryptocurrencies as money or foreign currency. It sees it as an asset that attracts capital gains tax (CGT) and income tax.

How you're taxed varies depending on your circumstances and intent.

ATO has laid out different tax rules for individual investors, and for taxpayers who earn a regular income from trading.

For taxation purposes, the ATO classifies all crypto users as either a trader or an investor.

Difference between investor and trader

An individual investing in a future return is considered an investor.

The investor buys and sells crypto as personal investment 'stock' with the aim to build wealth over a long period of time through profit made from long-term capital gains.

The majority of Australian crypto users fall into this category.

Any profits earned, or losses incurred, by these investors will be subject to CGT.

When an investor disposes of cryptocurrency - by either selling, buying things, trading, gifting, converting or by exchanging for other crypto - CGT is applicable.

The investor will pay 50 per cent less tax on crypto gains if they hold for one year before disposing.

In some instances, based on how the crypto was acquired, income tax may also be applicable.

A trader, on the other hand, is one who is active in crypto solely to generate an income, and functions as a business.

The ATO would tax you as a trader if you're earning an income by running a crypto-trading exchange, forging or mining business, or regularly buying and selling for short-term gains.

The main difference between investors and traders is that the former can get a 50 per cent CGT discount, but the latter cannot.

Rate of capital gains tax

The percentage of CGT you'll pay if you’re buying crypto as an individual investor is the same as your income tax rate.

Your income tax rate will be determined by your total income during the tax year and these are subject to tax breaks.

Do you get taxed for purchasing crypto?

When you buy cryptocurrency in Australia, you are not taxed, as long as you purchase with a fiat currency (Australian dollars, US dollars, British pounds, etc).

Crypto is also GST-free.

But it is of utmost importance to maintain accurate records of purchases to calculate the cost basis of the transaction when you want to sell or 'dispose' of the crypto, because the tax will be applicable at that time.

If you have transacted with a foreign cryptocurrency exchange, your tax responsibilities will lie in the country of purchase.

If you simply purchase and hold the crypto, then you are not taxed, even if the value of your portfolio increases.

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