Cryptocurrencies are a relatively new and quickly evolving market that is receiving more and more attention. Their youth as a market and novelty as a technology creates questions about their potential and hesitancy in adopting them as a standard. Australians, however, have taken to using cryptocurrencies and stand as a world leader in their adoption and use. Taggart & Partners have compiled the following information on cryptocurrency tax considerations to help inform you of the current regulations regarding cryptocurrencies. What follows is general information and as with all financial matters, it is best to seek the tailored advice from the professionals and experts.
Learn more about cryptocurrency tax considerations for business owners by contacting the tax accountants at Taggart & Partners today!
Cryptocurrency tax considerations & the ATO
The government requires records to be kept on all transactions involving cryptocurrencies. Buying, selling, or investing in cryptocurrency are considered transactions and government guidelines use ‘cryptocurrency’ to be synonymous to Bitcoin, or digital currencies having similar characteristics as Bitcoin.
Bitcoin and other digital currencies are not considered money and operate independently of governments, central banks, or other central authorities. For tax purposes, the ATO views cryptocurrencies as property which makes them an asset in terms of capital gains tax; they are also subject to income tax in certain situations.
Dealing in foreign cryptocurrency requires you to be aware of your tax responsibilities in other countries. Do your due diligence on the tax laws of the country you make transactions in.
Cryptocurrency Tax Considerations for Business People
How you interact with cryptocurrency impacts the tax rules you will be governed by; you can be categorised as either a trader or an investor. The critical difference, traders are generally involved in profit-making activities that generate taxable income while investors are subject to Capital Gains Tax.
Investor Cryptocurrency Tax Considerations
Investors are classified as people investing in a future return and treat cryptocurrencies as ‘stock’ which they hope will create profits from long-term capital gains. Profits and losses generated this way are subject to Capital Gains Tax. Additionally, depending on how the cryptocurrency was acquired, you may be subject to Income Tax. When your desired outcome is to create wealth through buying and holding a portfolio of investments, including cryptocurrencies, then you can be considered an investor. Most Australians will be categorised this way; examples include:
- Purchasing cryptocurrencies for yourself
- Trading and/or mining cryptocurrencies as a hobby
Investors are eligible for the 50% Capital Gains Tax discount, but traders are not.
Trader Cryptocurrency Tax Considerations
Traders are defined as people actively using cryptocurrencies to generate income and who operate a business; sole traders are included in this category too. Acting in a commercial way and out of commercial reasons, preparing business plans as well as other accounting records, and marketing your business name are all activities the ATO categorises under ‘trader’. Other activities can include:
- Commercial cryptocurrency mining and/or forging
- Performing business related cryptocurrency transactions
- Trading cryptocurrencies as a business
Profits generated this way are taxed as income.
Cryptocurrency Tax Considerations - CGT
Disposing of cryptocurrency triggers Capital Gains Tax (CGT), though if you hold for a year before disposing it, then you can pay 50% less tax on your gains. Examples of disposing cryptocurrency include:
- Selling for a fiat currency
- Spending to purchase goods and services
- Swapping for other cryptocurrencies
Investors purchasing cryptocurrencies will pay CGT based on their income tax rate.
There are several tax breaks that apply to cryptocurrencies.
- Income Tax is applied after making $18,200 or more
- Holding your cryptocurrency for a year or more reduces the CGT by 50%
- Exemptions from CGT on cryptocurrency held as a personal use asset
This last point requires caution as you will be responsible for demonstrating the cryptocurrency was indeed a personal use asset. Timing is critical to determining personal use asset status; the longer the cryptocurrency is held increases the likelihood that it will not be considered a personal use asset since you are likely to benefit from an increase in its value.
Learn more about Taxes and Crypto
Speak with a business tax accountant from Taggart & Partners to find out more information about taxes and cryptocurrencies. We are always happy to answer questions, call us on (07) 3391 1188, e-mail us firstname.lastname@example.org or connect with us through our contact form for this and other business advice.