Are you unsure whether or not cryptocurrencies are taxed in Australia? As a cryptocurrency investor or trader in Australia, it is quite essential you have a good knowledge of the authorities and taxes on cryptocurrency transactions. This will help you stay mindful of when and when not to pay taxes as a cryptocurrency trader or investor in Australia.
This tax guide will help you know about the regulatory framework for the taxation of cryptocurrency in Australia, various types of taxes imposed on cryptocurrency-related transactions, and the position of the ATO on the taxation of cryptocurrency.
What Authority Oversees Collection of Taxes on Cryptocurrency-related Transactions in Australia?
ATO, which stands for the Australian Tax Office, is the governmental agency responsible for regulating, collecting, and administering taxes in Australia.You may think that due to the decentralised nature of cryptocurrency, your transactions are hidden. However, the ATO has the power to mandate the technology companies that offer cryptocurrency-related services to provide them with information regarding your cryptocurrency transactions.
The ATO distinguishes cryptocurrencies from money (the Australian dollar or anyother fiat currency). Cryptocurrencies include Bitcoin, Ethereum, Binance coin,Tether. They are viewed as an asset that can be taxed; as such, cryptocurrencies are taxed when they are sold. The ATO imposes a tax on the profits from the sale of any cryptocurrency.
What Categories of Taxable Persons Exist in Australia?
There are two sets of people that are taxed. They are the traders and the investors.
They are businesses, whether sole proprietors or companies, whose businesses involve the use of cryptocurrency for peer-to-peer transactions and cross-border payments. To be classified as a trader, an assessment of the facts and circumstances of your business and trading must be done. You should also consider how the Australian Taxation Office would view the activity.
For you to be classified as a trader, here are some criteria:
- You must be carrying on commercial activities.
- You must undertake business activities such as preparing business plans, acquiring capital assets.
Irrespective of how often you buy and sell cryptocurrencies, the ATO will consider you an investor and not a trader because you are not set up as a business enterprise. Most Australians who buy and sell cryptocurrencies are investors because they only buy and sell them for profit. The category you fall will determine your tax liability.
What Type of Taxes is Applicable to Cryptocurrencies in Australia?
In Australia, because cryptocurrencies are considered as assets,they are subject to tax payment. Thus, these taxes are payable as Capital GainTax and/or Income Tax. Capital Gains Tax refers to the tax you are to paywhen you sell, gift, or trade your cryptocurrency and you make profits from them. The capital gains tax to be paid is calculated by a certain percentage on the difference between the cost of the purchase of the cryptocurrency if it was bought or its market value when you were gifted and the price of the sale.
What Are the Conditions for paying Capital Gains Tax?
According to the ATO’s publication on ‘Transacting with cryptocurrency', you will be liable for the payment of Capital Gains Tax if you do any of the following:
1.Sell or exchange it for fiat currency.
2.Give it out as a gift.
3.Use it for the payment of the purchase of goods and services.
4.Swap it for another type of cryptocurrency.
However, you should know that transferring cryptocurrencies from one wallet to another is not the disposal of such, provided both wallets are owned by you.
What is the rate of Capital Gains Tax?
The percentage of the tax to be paid also depends on the volume of the profit. You should also know that the rate you will pay as CGT is equivalent to your income tax rate. is According to the Australian Tax Office Resident Tax Rate for 2021 – 2022, this is the income tax rate and/or capital gains tax for 2022:
a.Less than $18,200 - 0%
b.$18,201 - $45,000 - 19%
c.$45,001 - $120,00 - $5,092 + 32.5% of income above 45,000
d.$120,001 - $180,000 - $29,467 + 37% of income above 120,000
e.Above $180,000 - $51,667 + 45% of income above $180,000
What Kind of Tax Reliefs Are Applicable to Cryptocurrencies?
There are certain circumstances where transactions involving cryptocurrencies will not be subject to payment of tax, and they include:
1. Receiving Cryptocurrencies
If you are a recipient of a cryptocurrency, probably as a gift, you are not liable to pay tax on it. However, you must record the value of such cryptocurrency at that time because it will be subtracted from the amount you sold the cryptocurrency for the gain to be determined.
2.Discount on 12 months non-usage of cryptocurrency
If you hold your cryptocurrency for twelve months in your wallet without making use of it, you will be entitled to a 50 percent discount on the profit you make from its sale.
3. Capital Loss
Have you ever wondered what would happen if you did not profit from the cryptocurrencies? This is referred to as Capital loss. This happens when the price you sold your cryptocurrency is lower than the price you bought it. You would not have to pay tax in this situation. You could offset the loss from the gains on other assets.
4. Cryptocurrency theft or loss
When your cryptocurrency private key is lost or stolen, you can claim a capital loss. ATO will have to determine if you lost access to your cryptocurrency or evidence of ownership. When the case is the former, you will not pay tax on the cryptocurrency you had. This is because it is impossible to replace a lost private key. Thus, for you to claim a capital loss according to the ATO’s policy on CGT Events, these are the condition precedents:
i.The time of acquisition and loss of the private key.
ii.The address of the wallet the private key is related.
iii.The cost of the acquisition of the lost cryptocurrency.
iv.How much cryptocurrency was in the wallet at the time of loss of private key.
v.Proof of control of the wallet (an example is a transaction that is traced to your identity).
vi.Proof of possession of the hardware that stores the wallet.
5. Personal use:
This is when cryptocurrency is kept or held for the purchase of necessities, such as food and groceries. The tax law in Australia permits you to buy and use cryptocurrency up to AU$10000 for things of personal effect within a short time. However,where the acquired cryptocurrency is held for a while before purchasing such items or purchasing such items with a little percentage of it, it will not form part of personal use asset. This is because the purchase could have been made from the profit made while holding the cryptocurrency.
Will you be taxed if you mine cryptocurrency?
Well,this depends on the purpose why you mine cryptocurrency. There are two categories of miners recognised in Australia. They are:
Hobby Miners: You fall into this category if you mine cryptocurrency as a hobby, and not because you intend to make profits from it. Hence, you are a hobby miner if you mine as a leisure activity or to while away time. You are seen as acquiring capital; as such, you are not taxed for mining. However, capital gains tax will be paid upon disposal, as explained above. Furthermore, the “personal use assets exception” will not apply to the disposal of cryptocurrencies that are mined. As such, you would be taxed upon its disposal.
Commercial Miners: These are those who mine cryptocurrency as a business on a large scale. By this, it means you mine cryptocurrency the way an established business runs it. This category of miners covers those who have a license to mine, have a business name, possess the machinery and operational facility, and also keep financial records, amongst other things. Another criterion is if you sell the mined cryptocurrency for profit. Thus, you will be taxed on any profit you make from the sale ofthe mined cryptocurrency as an income or capital gains tax.
When should you pay your taxes?
The annual taxation calendar runs from July 1st till June 30th of the succeeding year in Australia. As such, for 2022, you have to ensure you keep records of your cryptocurrency trading from July 1st, 2022, till June 30th, 2023.
How can you pay your taxes?
After the correct calculation of your tax liability, either by yourself or with the help of a professional accountant, you should proceed to your online my Taxportal dashboard on the myGov website.
Having gone through the tax guide, you should know that you have a duty under the law to pay the appropriate taxes on the disposal of your cryptocurrency, which does not fall within the above mentioned exceptions. Thus, it is important you act as a law-abiding citizen by complying with the regulations laid down by the Australian Tax Office for the growth of Australia.
With governments worldwide continued interest in cryptocurrency, it is a matter of time before it becomes mandatory. This is why MODH is here to provide complete guidance on everything you should know to be financially safe.