Are Crypto Losses Tax Deductible?

Yes, cryptocurrency losses are tax deductible in Australia, but only under certain conditions.

The ATO treats cryptocurrency as a capital gains tax (CGT) asset, meaning you can use crypto losses to offset capital gains.

This only applies to capital gains and losses though – meaning that if your losses exceed your gains in a given tax year, you can’t use those losses to reduce the amount of tax you owe from your ordinary income.

Fortunately, you can carry forward the remaining capital losses to offset future capital gains in subsequent tax years – and hopefully reduce your tax bill later on.

Keep reading to learn how to claim these losses on your tax return, what to do if you’ve been the victim of a scam, and how to stay compliant with ATO guidelines along the way.

How to Claim Crypto Losses on Taxes

1. Calculate Your Capital Losses

Determine Your Cost Base
Your cost base is the original purchase price of your cryptocurrency, including any fees.
Example: If you bought Bitcoin for $10,000 plus a $50 transaction fee, your total cost base is $10,050.

Calculate Your Proceeds
Your proceeds are the amount you receive from selling, trading, or disposing of your crypto.
Example: If you sold your Bitcoin for $9,000, your proceeds are $9,000.

Calculate Your Loss
Subtract the proceeds from your cost base:

= $9,000 - $10,050 = – $1,050 (capital loss)

2. Report Your Crypto Losses on ATO Forms

In Australia, crypto capital gains and losses are recorded in the Capital Gains Tax section of your tax return. If you use myTax, you’ll find this in the “Capital gains or losses that are not from a managed fund” section.

You will need to keep records of each crypto transaction, including:

• Date acquired
• Date sold or disposed of
• Proceeds (amount received)
• Cost base (purchase price + fees)
• Resulting gain or loss

Once you’ve calculated your net capital gain or loss, report this in your tax return for the relevant year.

3. Offsetting Gains and Deducting Losses

Offset Capital Gains

Use your cryptocurrency losses to offset any capital gains from other investments, such as stocks or real estate. This helps reduce your overall CGT liability.

Carry Forward Excess Losses

If your capital losses exceed your capital gains, you can’t deduct them from your regular income – unlike the US. However, you can carry forward the excess capital loss to future tax years to offset future gains.

Crypto Tax Calculator is specialised crypto tax software for investors like you. Once you connect your exchange accounts and wallets, our software will automatically scan your transactions and automatically calculate your taxes owed according to the latest ATO tax guidelines.

This helps ensure that any losses, deductions or fees are accurately recorded on your taxes, which can substantially reduce how much tax you pay.

4. Use software to track your losses and deductions

Cryptocurrency losses can help reduce your overall tax liability, when done right.

By properly tracking your transactions, calculating losses accurately, and offsetting gains where possible, you can take full advantage of potential tax benefits while remaining compliant with Australian tax laws.

Software like Crypto Tax Calculator can help you do this by automatically calculating losses across all your exchange accounts and wallets – even your most complex degen and DeFi activities.

Handling Crypto Losses from Hacks, Scams, or Theft

In the crypto space, hacks, scams, or exchange collapses can lead to permanent losses for victims. If you have been the victim of any such crime, you may not be able to claim a capital loss in the traditional sense. But don’t worry – you may have other options.

What to Do If You Are a Victim

1. Gather Evidence

Document everything related to the incident:

• Transaction IDs
• Wallet addresses
• Emails
• Screenshots of the scam or theft
• Any other communications made related to the scam or theft.

Detailed records are critical for both law enforcement and any subsequent tax filing you might attempt.

2. Contact Local Law Enforcement

Even if recovery isn’t guaranteed, reporting the event is essential.
Contact your local police to file a report. While local authorities may have limited crypto expertise, an official record helps establish a paper trail.
You can also report scams to the Australian Cyber Security Centre or lodge a report with Scamwatch.

3. Seek Professional Tax Advice

The ATO approaches crypto losses due to scam or theft on certain circumstances:

• You owned the asset: If you were the legal owner of the asset and it was lost due to a scam or theft, you may be able to claim a capital loss.
• You didn’t own the asset: If you were scammed into investing in a crypto or platform that didn’t exist – and didn’t acquire any assets – it’s unlikely you’ll be able to claim a capital loss since you never actually owned any assets.

Navigating the various circumstances can be complex, but a specialised accountant or tax adviser can review your situation and help advise you on the best course of action.

How to Report Hacks, Scams or Theft on Your Tax Return

When it comes to crypto-related losses from hacks, scams, or exchange collapses, Australian tax legislation hasn’t fully caught up. This can make reporting these losses on your taxes difficult. Because the ATO reviews each situation individually, it’s best to seek advice from a qualified accountant or lawyer familiar with crypto tax.

With that being said, here are a few general guidelines to be aware of:

1. Personal vs Investment Losses

If the lost crypto was held as an investment and you can demonstrate ownership (through transaction statements, wallet addresses, police reports, or fraud statements), you may be able to claim a capital loss.
If you didn’t actually own the asset – e.g. sending funds for a coin you never received – then in the eyes of the ATO you never owned a CGT, so it’s unlikely that you can claim a capital loss.

2. Worthless Securities or Property

In some cases, if your cryptocurrency becomes worthless – for example, after an exchange collapse or rug pull – you may be able to claim a capital loss if you can provide documentation showing there’s no chance of recovery.

3. No Specific Deduction for Theft or Hacks

Unlike other countries, the ATO does not currently provide a specific deduction for crypto theft or losses outside of claiming a capital loss. Even then, you don’t have an automatic right to a deduction. You need to prove you owned the asset and you’ve permanently lost access to it.

Case Studies: How Crypto Losses May Be Taxed in Australia

Below are two real-world case studies illustrating how such losses might be approached.
[Disclaimer: The following examples are hypothetical and do not provide specific guidance for any individual or situation. You should always consult a registered tax agent or accountant for personal guidance on how Australian tax laws apply to your specific circumstances.]

Case Study 1: Terra Luna Collapse

In 2022, Terra Luna suffered a dramatic collapse when its algorithmic stablecoin UST lost its peg, causing the Luna token’s value to plummet from over $100 to nearly zero in a matter of days.

Tax Implications

1. Capital Loss if Sold:

• If an investor sold Luna tokens for a fraction of the purchase price, this disposal may trigger a capital loss which can be used to offset other capital gains.

2. Holding Worthless Tokens:

• If you’re still holding LUNA and it’s effectively worthless, but not formally delisted, it may not count as a realised loss yet. The ATO typically only allows you to claim a capital loss when you dispose of or sell the asset, or can prove that the token is no longer actively traded or has no realistic chance of recovery.

3. Documentation:
Investors should maintain all records, including:

• Transaction history
• Purchase price and sale proceeds
• Exchange statements
• Any communication from Terra Luna or its affiliated projects to substantiate the loss.

This evidence will be vital if you’re audited by the ATO.

Case Study 2: FTX Exchange Collapse

FTX, once a major cryptocurrency exchange, collapsed in late 2022 amid allegations of fraud and mismanagement. Many Australian investors had significant crypto balances locked on the platform and were unable to access or withdraw.

Tax Implications

1. Proof of Loss:

• If your crypto was stored on FTX and has become inaccessible or potentially stolen due to fraudulent activity, you may not immediately be able to claim a capital loss. First, you need to show that the asset is unrecoverable and has no remaining value.

2. Future Recovery Scenarios:

• If you are able to eventually recover some funds – for example, through some bankruptcies, partial recoveries might eventually be distributed – you may need to adjust your tax returns or declare the recovered amount in future returns.

3. Documentation:
Keep detailed records including:

• Exchange statements
• Transaction IDs
• Official communications from FTX
• Any claims or notices from administrators or courts

This evidence is crucial for any potential deduction or future adjustment.

FTX users face an uncertain path. Depending on ongoing bankruptcy proceedings and legal actions, you may or may not be able to claim theft losses for tax purposes. Consulting a qualified accountant or tax adviser is often the best step to ensure compliance with ATO regulations.

Important Considerations When Claiming Crypto Losses On Your Taxes

Record-Keeping

Maintain detailed records of all cryptocurrency transactions, including:

• Dates of acquisition and disposal
• Purchase and sale prices
• Transaction fees
• Exchange or platform details

Good records help substantiate your tax return and protect you in case of an ATO audit.

Theft and Casualty Losses

Generally, crypto losses from theft or casualty (e.g., stolen crypto) are not automatically considered a deductible capital loss.

ATO Guidance

The ATO treats cryptocurrency as property (not currency), which means each crypto transaction is considered a taxable event and must be reported on your tax return, even if you did not realise a gain.

Final Thoughts

Cryptocurrency losses can help reduce your overall tax liability, when done right. By properly tracking your transactions, calculating losses accurately, and offsetting gains where possible, you can take full advantage of potential tax benefits while remaining compliant with Australian tax laws. Always remember to maintain thorough records, consult official ATO publications, and seek professional guidance when in doubt.

Need help with calculating and reporting your crypto taxes?
Using specialised software like Crypto Tax Calculator or consulting with a tax professional can streamline the process and ensure accuracy. By taking the right steps, you’ll be well-prepared for tax season and positioned to optimise your financial outcomes.

Sources

• Loss or theft of crypto assets, Australian Government: Australian Taxation Office, 2024,
  https://www.ato.gov.au/individuals-and-families/investments-and-assets/crypto-asset-investments/transactions-acquiring-and-disposing-of-crypto-assets/loss-or-theft-of-crypto-assets

• Report, Australian Cyber Security Centre,
  https://www.cyber.gov.au/report-and-recover/report

• A tax expert’s tips on claiming crypto losses on tax, and how to work out capital gains, The Conversation, 2023,
  https://theconversation.com/a-tax-experts-tips-on-claiming-crypto-losses-on-tax-and-how-to-work-out-capital-gains-206675

• Tax Return for Cryptocurrency Losses, Australian Government: Australian Taxation Office, 2023,
  https://community.ato.gov.au/s/question/a0JRF000000IedJ/p00260649

• How to calculate crypto losses, CPA Australia, 2023,
  https://www.cpaaustralia.com.au/public-practice/inpractice/taxation/how-to-calculate-crypto-losses