Of late, there was an announcement from the Australian Tax Office or ATO that it has been keeping tab and cracking down on the proceeds of cryptocurrency investment and trading. Moreover, since there has been an overwhelming response for Bitcoin and other digital currencies at large, it becomes even more important to understand the essential aspects of cryptocurrency tax in Australia. So, in this write-up, let us find out more about the same.
In the eyes of the ATO, transactions related to cryptocurrency are subjected to capital gains and income tax in Australia. So, considering the same, we will delve deeper into few aspects related to the same in the paragraphs that follow.
Transactions involving cryptocurrency
According to the ATO, since digital currency falls in the category of assets, it will attract CGT or capital gain tax if you decide to sell it off. You usually dispose off a digital currency under the following circumstances,
- When you plan to sell or gift it
- Exchange or trade a cryptocurrency
- When conversion of cryptocurrency occurs to fiat currency like US or Australian dollars
- If you make use of cryptocurrency to get services and goods
So, on disposal of cryptocurrency, you earn the proceeds that will be taxable. But there is good news as well. You will be exempt from this tax under few circumstances. Find out what conditions will attract the capital gains tax.
- Assets for personal use are exempt from capital gains tax if the cost is lower than $10,000. Under such circumstances, the ATO will regard this figure as use of personal asset if its worth is less than $10,000 and if you use it to buy goods and services. In other words, you must be able to convince the ATO that the proceeds that you get from the digital currency is not for the sake of earning profits.
- If you acquire cryptocurrency as investment
In the event you acquire cryptocurrency as an investment, the norms that will apply are similar to the ones that are for share traders and investors. In case you are holding the cryptocurrency for a longer time and then sell off, the proceeds you earn will attract capital gains tax. Any CGT will also attract a 50% capital gain tax discount, in the event you are a resident of Australia and you are holding the cryptocurrency for more than 12months. But in the eyes of the ATO, you will be regarded as a trader in case you sell and buy cryptocurrency over a shorter period instead of long-term.
- Trading one digital currency for another
It is a taxable event if you trade one cryptocurrency for another. This will be looked upon as two independent transactions. The first transaction will be that of sale and the second one will that be of purchase. Although, you do not get any cash in hand, you will have to shell out tax if you happen to make any profit from selling the first currency.
So, weigh the pros and cons before you might have to shell out capital gains tax for cryptocurrency transactions.