Australia ranks 5th out of 26 countries for crypto adoption, the crypto ownership rate being 20%, which is higher than the global average of 14% (Laycock, 2022). From the recent submersion of shop to earn cards, to the surge of online crypto communities, trading and investing has become a lot more accessible than it used to be, thanks to apps like Binance, Coinbase and several others. There’s no denying that as of now, crypto is here to stay. Because of this, it’s important to understand the tax implications of trading and investing in it – in this article, we’ll be covering specifically, capital gains tax in relation to crypto.

What is CGT:

Tax you pay on profits from selling assets – eg. property.

Capital gains and losses are reported in your income tax return. It is not separate to your income tax – (only taxed on earnings over $18,201)

Capital Gain: When you sell your crypto for more than it’s cost base.

Capital Loss: When you sell your crypto for less than it’s cost base.

Trader – Someone who invests in crypto to generate an income and does so from a business setup. The ATO may be tax you as a trader when you are:

– Running a crypto trading, forging, or mining business
– Running a crypto exchange
– Regularly buying and selling for short term gains

Investor – Someone who buys and sells crypto as a personal investment for a future return. Any profits gained will be susceptible to Capital Gains tax. If an investor holds on to a crypto asset for over 12 months, they may be eligible for a 50% CGT discount, according to the ATO.

Buying, Selling & Tax on crypto:

In Australia, you’re not taxed when you buy crypto in AUD – it is also GST free.
You should however, be keeping records of the purchase so you can calculate the cost basis of your transaction when you decide to dispose of your crypto – that’s when you’ll pay tax.

Selling crypto for government issued currency (like AUD) is a taxable event at the time of sale. This includes selling, spending, swapping or re-gifting. Receiving crypto as a gift won’t be taxed and neither will donating it.

Capital gains and losses have to be reported on your tax return. If there are no capital gains to offset losses, they will be carried on to future. Generally, capital losses will be taken off from any future capital gains (unless it’s a personal use asset).

Remember, you can only offset capital losses against capital gains.

Scenario:

You make a capital loss on crypto of $5,000 but have no capital gains made that year. The next year you make capital gains of $500,000 for selling a house. The $5,000 you lost will now be taken off the capital gain of $500,000 you gained (since property is an asset). The remaining $495,000 will be taxed as usual.

References:

Laycock, R. (2022, October 29). Finder Cryptocurrency Adoption Index. finder.com.au. https://www.finder.com.au/finder-cryptocurrency-adoption-index

Cryptocurrency Market Size, Share & COVID-19 Impact Analysis, By Component (Hardware, Software), By Type (Bitcoin, Ether, Litecoin, Ripple, Ether Classic, and Others), By End-Use (Trading, E-commerce and Retail, Peer-to-Peer Payment, and Remittance), and Regional Forecast, 2021-2028. (n.d.). https://www.fortunebusinessinsights.com/industry-reports/cryptocurrency-market-100149

Office, A. T. (2022, November 15). How to work out and report CGT on crypto. Australian Taxation Office. https://www.ato.gov.au/individuals/Investments-and-assets/crypto-asset-investments/how-to-work-out-and-report-cgt-on-crypto/