The top 5 cryptocurrency tax tips for Australians in 2018
Purchased or sold cryptocurrency in the last financial year? It’s a good idea to be aware of the tax consequences before your tax return becomes due for lodgement as you may have a tax liability.
The ATO has already warned taxpayers that profits from trading cryptocurrencies will be on their radar for the 2018 financial year.Here are our top five tips to help you navigate your way through this as a crypto investor.
Don’t forget, you should always seek professional advice specific to your circumstances — you do not want to overpay tax! You also don’t want to underpay tax, as you may be up for penalties and interest in the event of an ATO audit.
1. Take advantage of the 50% CGT discount
If you hold your cryptocurrency as an investment for 12 months or more, you may be entitled to the 50% Capital Gains Tax (CGT) discount to reduce a capital gain you make when you dispose of it.
The ATO views cryptocurrencies like bitcoin as property, not currency. This means it’s liable for capital gains tax (CGT) when sold for a profit.
A disposal may include:
- Selling your cryptocurrency
- Giving away your cryptocurrency as a gift to someone
- Trading one cryptocurrency for another
- Converting bitcoin to a fiat currency, such as Australian dollars
- Using cryptocurrency to buy goods/services
You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.
So, don’t forget to check the purchase date of your cryptocurrency and be sure to apply the 50% discount if you have held it for more than 12 months.
The ATO allows you to decide which parcels of crypto assets to use when calculating your cost base. But remember, you can only apply the discount to the same crypto asset. For example, the purchase of bitcoin and sale of bitcoin. As calculating your capital gain can be tricky, we suggest you refer to the ATO worked examples, which can be found here. Or, reach out to your accountant or tax agent for some help.
Please note, if you are running a business as a crypto trader, you will not be eligible for the 50% discount and you will be taxed on any profits as ordinary income. You may be entitled to a deduction for the cost of the cryptocurrency. Refer to tax tip three for more deductions you can claim.
2. Keep good records
Keeping accurate records of all your cryptocurrency trades is crucial. Even if you did not sell anything in the 2018 financial year, you should always track your purchases in case you want to sell them in a future financial year.
The ATO requires you to keep the following records:
- The date of the transactions, type of cryptocurrency, and units/number purchased
- The value of the cryptocurrency in Australian dollars at the time of the transaction
- What the transaction was for and who the other party was (even if it’s just their cryptocurrency address)
To help you with this, you can download a CSV file straight from your Bit Trade account order history.
Keep in mind that this transaction report only includes trades on bitcoin and Ether made via our platform. You will need to collect all of your records from other exchanges, even if they are based overseas.
3. Don’t forget about deductions
If you are reporting profit from the sale of your cryptocurrency as a trader, you are also eligible to claim deductions you incurred to earn that profit. Here are some examples of costs you can claim:
- Wallet costs
- Accountant/tax agent fees for any advice received on the sale of your cryptocurrency or for preparing your tax return
- Software costs related to trading
- Brokerage fees/commissions
- Subscription costs relating to trading
If your crypto assets are held on an investment account, you can reduce your capital gains tax by making sure you account for all of the costs of acquisition of your crypto. Some of the costs above can be added to your cost of the crypto, for example, brokerage/commission. You can also claim a tax deduction for other costs, such as accounting fees to prepare your tax return.
The ATO guidelines on the various elements of the cost base is a useful start for more information. Check it out here.
4. Learn how to manage forking/chain splits
The ATO has just released their view on how to treat forking/chain splits of cryptocurrencies:
“If you hold cryptocurrency as an investment, and receive a new cryptocurrency as a result of a chain split (such as Bitcoin Cash being received by bitcoin holders), you do not derive ordinary income or make a capital gain at that time as a result of receiving the new cryptocurrency.
If you hold the new cryptocurrency as an investment, you will make a capital gain when you dispose of it. For the purposes of working out your capital gain, the cost base of a new cryptocurrency received as a result of a chain split is zero. If you hold the new cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount”.
5. Remember that personal use assets are tax-free
If your only purpose for buying cryptocurrency was for personal use (for example, using bitcoin to buy a good or service for personal use or consumption) then you can ignore any capital gains (or losses) if the cost of the cryptocurrency was less than $10,000.
With our new pay your BPAY bills with crypto feature you can have pay your ATO BPAY bills using bitcoin or Ether easily from your Bit Trade account. You can learn more about that here
Please note, this paper is not tax advice. You should seek the advice of a professional if you are unsure of the tax consequences of trading in cryptocurrency. Not all taxpayers will be eligible for the 50% discount as this will depend on the nature of their investment activities, frequency of trading, ownership structure, and tax status. If this is the first time you are investing in cryptocurrency, we strongly recommend you seek professional advice from an accountant or registered tax agent.
Got any additional tax tips you think are relevant? Let us know in the comments.
