Crypto Taxes In Australia
Like most countries across the globe, Australian citizens are similarly subject to taxes on their cryptocurrency gains. However, the evolving tax laws set forth by the ATO means that it can be hard to cover the complete scope. This article will break down the key points on crypto taxes that you should be familiar with!
10 years ago when buying Bitcoin was your only option the tax process was also simple, the taxable event occurred when you transferred your bitcoin back to AUD. Nowadays, doing your taxes for more than 10 transactions can be a huge headache.
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Let’s start with the basics. Individuals trading any cryptocurrency are subject to capital gains tax, just like any other financial asset in Australia.
A capital gain is when the difference between your buy and sell price is positive. For example, I buy ETH for $250 and sell it for $400 my capital gain would be $150.
A capital loss is when this difference is negative, if I bought BTC at $12,000 and sold at $9,000 my capital loss would be $3000. Just like other asset classes, a capital loss can be used to offset a gain in the current financial year.
The tricky part of Crypto Capital Gains
You invest $1000 into Apple, 6 months later you sell your shares for $2000. Your capital gain would be $1000 and the capital gain event would be triggered when you sell the shares.
The unique element of crypto taxes is a capital gain event occurs whenever you transfer between cryptocurrencies or when you transfer ownership of your crypto assets.
You purchase 100 units of Bitcoin for a total of $10,000. A week later you exchange 10 of Bitcoin for 20 of Ethereum.
At the time of the exchange, 20 of Ethereum is worth $2,000.
The capital gain in this transaction can be calculated with the cost base as $1,000 (Purchase price of 10 units of Bitcoin) and the capital proceeds as $2,000 (Market value of Ethereum at the time of exchange).
Capital Gain = $2,000 - $1,000
This is easy when you only have a few transactions but can become tedious when you have hundreds or even thousands of transactions over a year.
Of course, when you exchange any crypto for fiat currency (USD, AUD, GBP) this also triggers a capital gain event.
Transferring between wallets
Transferring crypto between wallets you own and control is not a capital gains event. This would be the equivalent of transferring money from one bank account you have to another. Moving your crypto around to trade and take advantage of the wider crypto ecosystem is a natural step and not taxable.
Transferring to an exchange
You might think that transferring to an exchange would be the same as transferring between wallets, and you would be right if one key fact is true. Do you have control of the exchange wallet? This can be a tricky distinction to make and the terms and conditions can be your friend in figuring this out.
If the exchange simply negotiates on your behalf then technically you still control the funds. If on the other hand, the exchange takes ownership of your assets this will be considered a taxable event and you will have to record this for the ATO.
Initial Coin Offerings
As Stated by the ATO buying a coin at its ICO is the same as any other crypto to crypto exchange and thus is considered a capital gains event. Of course, you have to sell one crypto to buy the new one so selling your old crypto will result in a taxable event and the price at which you buy the new coin at ICO will determine the cost base for the future capital gain event when you sell it.
Margin trading refers to a type of trade where borrowed funds are used to complete the transaction. There is a lack of guidance of specific guidance from the ATO regarding the tax treatment of margin trading in crypto. So unfortunately at this stage, we cannot provide any guidance in this area but it would be a good idea to keep a record specifically of your margin trades for when the ATO does make a decision.
Irrespective of whether you are a business, investor or personal user of cryptocurrency, it is important that you maintain records of all your cryptocurrency exchanges. Records may be requested at the discretion of the ATO and generally need to be held for a period of 5 years after the cryptocurrency exchange.
The records you maintain must include the following:
- the date of the transactions
- the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
- what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).
In addition to the above requirements, your records should contain:
- receipts of purchase or transfer of cryptocurrency
- exchange records
- records of agent, accountant, and legal costs
- digital wallet records and keys
- software costs related to managing your tax affairs
Tools To Automate The Tax Process
The most comprehensive tax tool on the Australian market is CryptoTaxCalculator. Not only is it one of the only Australian based operators but it understands the nuances of the Australian tax laws better than any other provider.
They also have a more in-depth Crypto Tax Guide if you are doing more than just using Kucoin.
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