Investing in cryptocurrency can be rewarding, but it is important to recognise that there are differences between crypto investing and other forms of investing that you may be more familiar with (e.g. Forex and Shares). The Australian Taxation Office (ATO) has applied existing legislation to cryptocurrency transactions which are not exactly intuitive. But given some guidelines, it is possible to understand crypto tax in Australia. Ultimately, different tax liabilities may arise depending on the type of transaction made, as well as the entity making the transaction (i.e. Business or Individual).
In this guide, we attempt to break down some of the different tax implications that may arise in the world of crypto, provide some foundational understanding of cryptocurrencies as a whole, and answer some common questions that arise when trying to understand the Australian tax system.
Individuals transacting with cryptocurrency may incur tax liabilities in the form of Capital Gains Tax (CGT) or Income Tax. The type of tax payable, as well as the quantity, will depend on the specific features of the transaction.
Cryptocurrency Capital Gains Tax
Capital Gains Tax is the tax you pay on a capital gain made from the sale of a capital asset. The capital gain (or loss) is the difference between the price the capital asset was disposed of for (Capital Proceeds) and the price it was purchased for (Cost Base).
Capital Gain = Capital Proceeds – Cost Base
For example, if you purchase a car for $10,000 and later sell it for $15,000, your capital gain is $5,000 (15,000 – 10,000).
For cryptocurrencies, many different transactions involve the disposal of cryptocurrency. This disposal may give rise to a ‘Capital Gains Tax Event’, where there will be some CGT payable to the ATO. Once the taxable quantity is determined, the total tax payable is calculated according to the individual’s income tax bracket (see below). Note that the following table for income tax rates 2021-22 does not account for the Medicare levy of 2%.
Claiming a Capital Loss on Cryptocurrency
Capital losses can offset capital gains within the current or future financial years. It is important to note that capital losses can not be used to offset capital gains from previous tax years. But if you make a capital loss in cryptocurrency and a capital gain in the stock market in the same financial year, you can use the crypto capital loss to offset your stock gains. Note: The ATO recently issued a media release warning taxpayers to not engage in ‘asset wash sales’ to artificially increase their losses and reduce gains or expected gains. Wash sales are a form of tax avoidance that the ATO is focused on this tax season.
Reporting your crypto tax activity
The Australian Tax year will be operating between 1st July 2021 - 30th June 2022. To lodge a tax return for the current tax year, you will have to submit it before October 31st 2022. If you are submitting it through an accountant, the cut off date is 31st March 2023. In the same way that you would report your normal income, gains and losses, you will have to sign into your myGov account to file your taxes.
Once you have linked the Australian Taxation Office (ATO) service, you can select it from your dashboard to access the ATO website. Select ‘Tax’ from the navigation bar and then select ‘Income Tax’ under the Lodgements option as below.
Once you have done this, select the currency years Income return lodgement, and follow the first 2 steps to ensure your personal and bank details are accurate. When you reach step 3, make the following selection in addition to your regular income, to ensure that your tax return reflects your crypto activity.
You can then proceed to the fourth step to prepare your tax return.
Calculating your tax with CryptoTaxCalculator
It can be a difficult process to manually calculate the taxes accrued from your crypto transactions, and the entire industry is still quite new for many accountants. Luckily, we have made it simple to import all your crypto activity into one place by either copying and pasting your public wallet addresses into our application or using our wide range of API and/or CSV integrations. Once you have done this, your transactions will be auto-categorised according to the type of activity they fall under. For example, if you received an airdrop, our algorithm will automatically categorise this particular transaction as ‘Airdrop’, which will then be recognised as income in your final report. If you need to make amendments, you can select different types of transaction categories which are relevant to the data you imported. Categories available include buys, sells, staking rewards, mints, and many more. This will allow CryptoTaxCalculator to produce a complete tax report for any financial year, personalised to meet the Australian tax requirements.
You can import data for all the cryptocurrencies you have traded with, and our application will combine them into various report formats. Our most frequently used is the ‘Report Summary’, where you can view your capital gains, losses and/or income for a particular financial year. Other options include an ‘Income Report’, ‘Miscellaneous Expenses Report’ and more.
For more information on the different transactions you may need to consider in your lodgement for the current tax year, we have summarised and provided examples for you as per the ATO’s guidelines. Please see below for an explanation of the common transactions that may result in CGT or Income Tax liability and how your tax will be calculated.
Crypto to Crypto Transactions
It is common for individuals to trade one cryptocurrency for another, often in the course of investment or capital acquisition. Exchanging one cryptocurrency for another (e.g. Bitcoin for Ethereum) will be considered by the ATO to be a CGT event.
If you dispose of one cryptocurrency to acquire another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. The ATO recognises cryptocurrencies to be property rather than money, which means that the cryptocurrency you receive in return needs to be accounted for in Australian dollars. If the cryptocurrency you received can't be valued, the capital proceeds from the disposal are worked out using the market value of the cryptocurrency you disposed of at the time of the transaction.
As stated on the ATO website as of 12 July 2020
You purchase 100 units of Bitcoin for a total of $10,000. A week later you exchange 10 Bitcoin for 20 Ethereum. At the time of the exchange, 20 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 = $1,000
This process can be tedious to calculate for multiple transactions. In the example above, our CryptoTaxCalculator software would automatically calculate the capital gain of $1,000 for you once you import the data sources from which you made the trade/s.
Investing in Cryptocurrency or Converting to a Fiat Currency
It is common for individuals to exchange cryptocurrency for a Fiat Currency (E.g. Euro, AUD, USD etc.), often at the point in time when an investment is finalised. The ATO considers this a CGT event and there are some tax implications you should be aware of.
If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on the disposal of the cryptocurrency.
You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.
If you hold the cryptocurrency as an investment, you will not be entitled to the personal use asset exemption. However, if you hold your cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount to reduce the capital gain you make when you dispose of it.
As stated on the ATO website as of 11 July 2022.
Example: You have purchased 3 Bitcoin for $1,000. 2 months later you decide to exchange 3 Bitcoin for $1,500.
The capital gain in this transaction can be calculated with the cost base as $1,000 (Purchase price of 3 units of Bitcoin) and the capital proceeds as $1,500 (Exchange value of 3 units of Bitcoin at the time of exchange).
Capital Gain = $1,500 - $1,000
Hypothetically if you held the 3 Bitcoin for 13 months (instead of 2) and made the same capital gain, the tax payable would be discounted by 50%. Your CGT would be calculated based on $250 instead of $500.
Proceeds From ‘Staking’ and ‘Airdrops’
Staking is a process whereby individuals can ‘lock up’ their cryptocurrency to support the operation and security of the blockchain network. When decisions are made regarding the blockchain, the group in consensus (i.e. the group in majority decision) are rewarded with additional crypto tokens. The process is comparable to earning interest on a bank deposit.
Often individuals that are participating in a staking pool will indicate that they always wish to agree with the majority (i.e. they always wish to be in consensus). They will receive a small number of coins as a reward whenever the pool reaches consensus.
Token holders who participate in 'proxy staking' or who vote their tokens in delegated consensus mechanisms and receive a reward for doing so will also derive ordinary income equal to the money value of the tokens they receive.
Any income earned from Staking rewards will not constitute a Capital Gains event. Rather, additional tokens received from these processes are considered by the ATO to be income. Staking rewards are currently taxed by the ATO according to your income bracket.
An airdrop is a term used to describe when cryptocurrency projects deliver a small quantity of their coin to individuals by depositing it into their cryptocurrency wallet. This is often employed as a marketing technique to raise awareness about relatively new coins, or as a way to reward early adopters of projects.
The ATO states that the money value of an established token received through an airdrop will be taxed as ordinary income of the recipient at the time it is derived. The ATO has also recently clarified that ‘non-established tokens’ airdrops (tokens which have not been traded prior to the airdrop) are not taxable, nor do they trigger a CGT event. Furthermore, the airdropped tokens will have a zero cost basis for CGT purposes and the timing for the 12 month discount is when the tokens are received by the user.
As stated on the ATO website as of 7 September 2022.
Staking Example: You hold 100,000 Bitcoin in a pool for the purpose of staking. Your pool reaches consensus and you receive an additional 10,000 Bitcoin as a reward.
The additional 10,000 Bitcoin are worth $50 at the time you received them.
The $50 worth of coins you received is considered income for tax purposes.
In the future, if you exchange or sell the coins, the CGT you pay will be calculated with the cost base being $50.
Airdrop Example: You have a cryptocurrency wallet and are airdropped 100 units of Bitcoin. The value of 100 units of Bitcoin at the time of the airdrop is $20. The $20 worth of Bitcoin will be considered income for tax purposes.
In the future, if you exchange the coins, the CGT you pay will be calculated with the cost base being $20.
In the above examples, using CryptoTaxCalculator, you would be able to import and categorise any staking rewards or airdrop transactions accordingly so that they are recognised as ordinary income in your final report.*
Cryptocurrency as a Personal Use Asset
Cryptocurrency is considered to be a ‘personal use asset’ if it is held for personal use . Any capital gains made on cryptocurrency that is being used as a personal use asset up to $10,000 will be exempt from CGT.
When determining whether your cryptocurrency holding is a personal use asset, the ATO will consider the time between acquisition and use as well as other factors such as how it is used and the purpose of the holding.
As a general rule, the longer you hold your cryptocurrency, the less likely it is that the ATO will consider your holding to be a personal use asset.
Cryptocurrency is a personal use asset if it is kept or used mainly to purchase items for personal use or consumption.
Cryptocurrency is not a personal use asset if it is kept or used mainly:
- as an investment
- in a profit-making scheme, or
- in the course of carrying on a business.
Where cryptocurrency is acquired and used within a short period of time, to acquire items for personal use or consumption, the cryptocurrency is more likely to be a personal use asset. It’s best to work with your accountant to determine what will or will not fall into this category in terms of your crypto activity.
As stated on the ATO website as of 29 June 2022.
Example: You have held 10,000 units of Bitcoin for 2 years. Occasionally, if you see the opportunity to pay for goods you wish to buy online with Bitcoin, you will make the purchase with Bitcoin. The primary purpose for your holding of Bitcoin is an investment.
Your holding of Bitcoin is not as a personal use asset.
Example 2: You see an ad online for a good you wish to purchase. There is a 2 for 1 offer if you decide to pay with Bitcoin rather than $AUD. You acquire the quantity of Bitcoin required to make the purchase and complete the transaction within a week of acquiring Bitcoin.
Your holding of Bitcoin was as a personal use asset.
CryptoTaxCalculator can assist in tracking holding times, quantities and use of crypto assets. You can then use this information to determine whether or not it would be considered a personal use asset by the ATO.
Forking and Chain Splits
A chain split can occur when there are two competing versions of a blockchain. The two pieces of blockchain share the same history but have different potential paths for the future. When chain splits occur, holders of the base coin are often awarded some quantity of the new coin.
A well-known example of this occurring was with the creation of Bitcoin Cash in 2017. This was a chain split from the well-known cryptocurrency Bitcoin and resulted in holders of Bitcoin also being awarded some quantity of Bitcoin Cash.
When an individual receives a new cryptocurrency as a result of a chain split, the value of the new holdings is not considered income. The new holding is treated as an investment with a cost base of $0 to calculate any future CGT.
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.
However, if you hold the new cryptocurrency as an investment, you will make a capital gain when you dispose of it. When working out your capital gain value, the cost base of a new cryptocurrency received as a result of a chain split is $0. If you hold the new cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount of 50%.
As stated on the ATO website as of 29 June 2022.
In determining which is the ‘new’ cryptocurrency at the time of the chain split, the ‘new’ cryptocurrency is the one with different rights from the original one. In some cases, the chain split can result in the creation of two new cryptocurrencies and the discontinuation of the original one. If this occurs, the individual incurs a capital loss on the original cryptocurrency and holds two new cryptocurrencies with a cost base of $0.
Example 1: You hold 20 Bitcoin. There is a chain split and you now hold 20 Bitcoin and 20 Bitcoin Cash
Bitcoin Cash has different rights to Bitcoin, therefore it is classified as a new Coin.
In the future, if you wish to exchange Bitcoin Cash, your CGT will be calculated with a cost base of $0.
Example 2: You hold 20 Bitcoin. There is a chain split and you now hold 20 Bitcoin Cash and 20 Bitcoin Gold.
Bitcoin Cash and Bitcoin Gold have different rights to Bitcoin, they are new coins.
You have made a capital loss on your holding of Bitcoin.
If you wish to exchange Bitcoin Cash or Bitcoin Gold in the future, your CGT will be calculated with a cost base of $0.
Example 3: There may also be a situation where the original cryptocurrency is still in existence but now has different rights.
Bree held 60 Ether as an investment just before the chain split on 20 July 2016. Following the chain split, Bree held 60 Ether and 60 Ether Classic. The chain split resulted from a protocol change that invalidated the holding rights attached to approximately 12 million pre-split Ether.
Ether Classic exists on the original blockchain, which rejected the protocol change and continued to recognise all of the holding rights that existed just before the chain split. Ether Classic is the continuation of the original asset. The Ether that Bree received as a result of the chain split is her new asset. The acquisition date of Bree's post-split Ether is 20 July 2016.
As stated on the ATO website as of 29 June 2022.
Keeping track of the different cryptocurrencies arising from a chain split can be confusing. CryptoTaxCalculator gives you the ability to categorise particular transactions as ‘Chain Split’, which will then help you determine your tax liabilities that may arise from the situation.
Lost or Stolen Cryptocurrency
If you have lost your cryptocurrency private key or it has been stolen, it may be possible to claim a capital loss. Documents and information will have to be provided to the ATO showing evidence of your ownership. Examples of evidence to provide include:
- when you acquired and lost the private key
- the wallet address that the private key relates to
- the cost you incurred to acquire the lost or stolen cryptocurrency
- the amount of cryptocurrency in the wallet at the time of loss of private key
- that the wallet was controlled by you (for example, transactions linked to your identity)
- that you are in possession of the hardware that stores the wallet
- transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.
As stated on the ATO website as of 29 June 2022.
In the event of loss or theft, CryptoTaxCalculator gives you the ability to categorise specific transactions as such. Any transactions submitted in-app under the ‘Lost’ or ‘Stolen’ categories will be automatically categorised as a capital loss for you.
Record Keeping for Cryptocurrency
Irrespective of whether you are a business, investor, or just a dabbler in cryptocurrency, it is extremely 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 activity.
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
As stated on the ATO website as of 29 June 2022.
This is generally a tedious process and one which CryptoTaxCalculator can streamline for you, by helping to handle the import and categorisation of your data automatically.
Non-Fungible Tokens (NFTs)
Cryptocurrency collectibles known as Non-Fungible Tokens (NFTs) are scarce digital assets built on a cryptocurrency blockchain. They can be bought from a variety of sources and are ultimately stored in a cryptocurrency wallet. They are unique and non-fungible, meaning that they are one of a kind.
NFTs are often digital representations of characters or other animated, objects or creatures (e.g. BoredApes, CryptoPunks etc). These assets derive their value from their non-fungibility as the supply of a particular cryptocurrency collectable is always fixed at 1, meaning that their value can quickly be driven up if they have some desirable qualities (e.g. aesthetic appeal).
The ATO has now given specific guidelines on the tax obligations for NFTs. As stated on their website, “the tax treatment of NFTs follows the same principles as cryptocurrency.” This means that NFTs are treated as CGT assets, and so the following activities will likely trigger a taxable event:
- Selling NFTs in exchange for cryptocurrency
- Exchanging one NFT for another NFT, or fungible cryptocurrency
- Giving an NFT as a gift
Similar to how cryptocurrencies are currently taxed, investors that make a loss when disposing of an NFT will be able to claim a capital loss to offset any capital gains made otherwise.
The cost base is the cost of acquiring the cryptocurrency collectable (in $AUD) and the capital gain is the price (in $AUD) that it is exchanged for at the point of sale.
Example: You purchase one CryptoPunk for $1000. A lot of people are attracted to your CryptoPunk due to its appearance. As a result, 2 weeks later you can exchange your CryptoKitty for $10000.
Capital Gain = $10000 - $1000 = $9000
Having to accurately locate the data above for every NFT transaction is a challenging task, especially when considering that most NFT users aim to flip them for a profit, accruing hundreds of NFT transactions. Rather than calculating NFT taxes by hand, the easiest way to automate this process is by using CryptoTaxCalculator, where you can easily import and reconcile NFT transactions for tax purposes in a few clicks.
Taxes on Yield Income from Stablecoins
“Stablecoin” is a term used to describe a wide variety of cryptocurrencies that have their value pegged to an underlying asset. The purpose of stablecoins is to afford users the benefits of cryptocurrency without exposing them to as much risk of volatility.
It is common for stablecoins to be pegged to a fiat currency, such as Tether (USDT) which is fixed to the US Dollar. The price stability of these cryptocurrencies leads them to be a preferable choice of payment for employees that seek to be paid in cryptocurrency.
Despite the value relationship between these cryptocurrencies and fiat currencies, for taxation purposes, they are considered by the ATO to be the same as any other cryptocurrency.
If you receive a stablecoin as income as part of your job, you will have to pay income tax on the stablecoin according to your income bracket. In addition, you will have to pay CGT upon your disposal of the stablecoin if you make a capital gain. However, since stablecoins are 'stable' by nature, it is unlikely that the size of the CGT event will be large.
Example: You receive a monthly payment of 1,000 Tether as part of your income package. The $AUD value of the 1,000 Tether is $1,300. You will have to pay income tax on $1,300 for that month according to your income bracket.
At some time in the future, you exchange the 1,000 Tether for 3 Bitcoin. The 3 Bitcoin are worth a total of $1,500. You must pay CGT on the capital gain from this transaction.
Capital Gain = $1,500 - $1,300 = $200
Loaning Your Cryptocurrency
In the ATO’s community forum, a staff member of the ATO stated that when crypto is loaned, either to an individual or a lending protocol, this may constitute a disposal event depending on the particulars of the loan situation and therefore your transaction may be subject to capital gains tax.
However, there is another element to this situation: loaning your cryptocurrency and receiving interest. At CryptoTaxCalculator, our algorithm will categorise any interest earned as income.
We recommend checking with your tax professional if these assumptions are valid given your individual circumstances.
Example 1: You loan 3 Bitcoin worth a total of $1,000 with a flat interest rate payable in $AUD at 10%. You maintain ownership over the Bitcoin during this period so there is no CGT payable.
At some time in the future, you receive 3 Bitcoin from the borrower (Your principle) as well as $100 (Your interest payment).
The $100 you received will be subject to income tax according to your tax bracket.
Example 2: You acquire 3 Bitcoin for a total cost of $800.
9 months later you loan your 3 Bitcoin valued at $1,000 with a flat interest rate payable in $AUD at 10%. Due to the terms and conditions of the loan, you do not maintain ownership of the Bitcoin during the period of the loan.
Because your ownership ceases at the time of the loan, you must pay CGT.
Capital Gains = $1,000 - $800 = $200
6 months after the commencement of the loan, you receive your 3 Bitcoin back, valued at a total of $1,000 as well as your interest repayment of $100.
You must pay income tax according to your income bracket on the $100 interest.
Your ownership of the 3 Bitcoin has ‘reset’ meaning that you will only be eligible for the 50% CGT discount after holding the Bitcoin for 12 months from this point. If you sell the 3 Bitcoin in the future, your cost base is $1,000; the value of the Bitcoin when you re-acquired ownership.
Moving Cryptocurrency to an Exchange
Moving cryptocurrency between exchanges is common for cryptocurrency users. However, it is important to carefully read the terms and conditions of each exchange. You will need to establish whether by moving your cryptocurrency to an exchange if the exchange acquires ownership over the asset or whether they simply negotiate on your behalf.
This distinction is important because in the first instance, moving your cryptocurrency to an exchange that acquires ownership over the asset may constitute a CGT event. This is because the ATO views each individual cryptocurrency as a separate asset (i.e. 1 Bitcoin is different from the next Bitcoin). This is also important for ensuring the correct dates and cost bases are used to calculate CGT discounts.
As stated by the ATO on their community questions page as of 03 August 2020.
In the second instance where the exchange simply negotiates on your behalf, you would maintain ownership of the cryptocurrency. If this is the case, moving cryptocurrency to the exchange may not constitute a CGT event.
CryptoTaxCalculator does not categorise deposits and withdrawals to exchanges as CGT events, but you should check with your tax professional if that is valid for your individual circumstances. If so, you can categorise these transactions accordingly in the CryptoTaxCalculator app.
Earning Cryptocurrency from Work
Web3.0 is rapidly evolving, and more and more jobs in the industry are offering crypto as remuneration. As part of your income, you receive 3 Bitcoin per month. For your January income payment, when you receive the 3 Bitcoin, they are worth a total of $1,500. You will pay income tax on this $1,500 according to your income tax bracket.
In the absence of a valid salary sacrifice agreement, the employee is considered to have derived their normal salary or wages and the employer will need to meet their pay-as-you-go (PAYG) obligations on the Australian dollar value of the cryptocurrency paid to the employee.
As stated on the ATO website as of 29 June 2022.
At CryptoTaxCalculator we categorise future sales of cryptocurrency earned as income as capital gains, with the cost basis being the price when you received the cryptocurrency.
Example: You earn 1 BTC at $1,000 AUD in 2016. In 2020 you sell the 1BTC for $15,000 AUD. We calculate add $1,000 to your income for the 2016 financial year and $14,000 to your long term capital gains balance for the 2020 financial year.
We recommend that you check with your accountant if this is approach is suitable for you.
Transferring Cryptocurrency Between Wallets
Transferring cryptocurrency between wallets you own will not be considered a taxable event by the ATO. This action is comparable to transferring $AUD between two bank accounts.
While this is not a taxable event in itself, it is still important to maintain records of these transactions as they act as a record of events for other potentially taxable events.
Transferring cryptocurrency between your wallet and another wallet not owned by you
If you have received something in exchange for your cryptocurrency transfer, there will be a tax liability calculated according to the standard CGT rules.
If you have not received anything for this transfer (i.e. you transferred the cryptocurrency as a gift), you still have to pay CGT according to the ATO. To calculate CGT in these circumstances, the cost base is the market value of the cryptocurrency at the time of exchange.
Example: You purchase 2 Bitcoin for $2,000. At a point in the future, you send 2 Bitcoin to your friend. You receive nothing in exchange. You have given your friend a gift of 2 Bitcoin.
At the time of your gift, 1 Bitcoin has a market value of $1,500. The total value of your gift is $3,000 (2 x $1,500).
Capital Gain = $3,000 - $2,000 = $1,000
Receiving a Gift
According to the ATO, the receiving of cryptocurrency as a gift does not directly trigger a CGT event. If you later sell the cryptocurrency you received as a gift, CryptoTaxCalculator calculates any gains or losses made from the sale as a CGT event. You will need to check with your tax professional on the nature of the gift and if this assumption is appropriate given your individual circumstances.
Example: For your birthday your friend sends you 3 Bitcoin. At the time you receive the gift, the coins are valued at $100 each. The total value of the gift you received is $300.
In the future, you sell 3 Bitcoin for a total of $400.
Capital Gain = $400 - $300 = $100
Initial Coin Offerings
Initial Coin Offerings (ICO’s) are events where a cryptocurrency token is released into the market for the first time. ICO’s are comparable to Initial Public Offerings (IPO’s) of shares.
The tax implications for individuals regarding ICOs will vary depending on the specific characteristics of the cryptocurrency that is being offered. The standard rule that CGT will not be payable until there has been a disposal will generally still apply.
You will need to keep records of your investment regarding the ICO, but tax won't apply until you dispose of your cryptocurrency. You will have to maintain records related to the costs of acquiring and owning the particular crypto from the ICO to form your cost base and work out if you’ve made a capital gain or loss.
As stated on by the ATO on their community questions page as of 03 August 2020.
In the crypto industry, users usually participate in ICOs by trading one cryptocurrency for the newly released cryptocurrency. As such, CryptoTaxCalculator will categorise most ICO-related transactions as crypto-to-crypto trades for tax purposes. We recommend that you check with your accountant to ascertain whether this is appropriate for your personal situation.
Example: During the ICO of Ethereum, you acquire 10 Ethereum for $5 per unit. The total value of your acquisition of Ethereum during the ICO is $50.
During the ICO of Ethereum, you acquire 10 Ethereum for $5 per unit. The total value of your acquisition of Ethereum during the ICO is $50.
You pay for your 10 Ethereum using 1 Bitcoin worth $50.
In the future, you sell your holding of Ethereum for a total of $100.
Capital Gain = $100 - $50 = $50
Margin Trading, Derivatives, and Contracts For Difference
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. However, there is existing guidance on "Contracts For Difference" in which you are betting on the price movement of an asset whilst not owning the asset.
After talking to different accountants, CryptoTaxCalculator has decided that would be the most likely categorisation type for these types of transactions. As such, we keep CFD trades separate from the capital ledger and breaks them out as income items. We recommend that you talk to your accountant to decide what is most appropriate for your individual circumstances. Here is some additional information on CFD's that you can use as reference:
ATO CFD Taxation Community Discussion ATO Tax Ruling for Contract For Difference
- You transfer 1 BTC to Bitmex as collateral
- You leverage the BTC to 100x at a price of $10,000 USD per BTC (this makes you $1 million long on BTC)
- BTC goes up 5% before you close your position at 1,050,000
- Your balance has increased $50,000 and you still have the BTC
- Therefore your total income is $50,000 from this trade
As the industry grows, there are more and more types of transactions coming into cryptocurrency activity. One of the recent innovations is the ability to transfer cryptocurrency between blockchains by wrapping the underlying token and receiving a new 'similar' token in return.
In terms of the tax implications, there are two arguments:
- Wrapping a cryptocurrency is a 'like-for-like' trade, so it is not a taxable event. It is just a deposit/withdrawal similar to transferring money from one bank account to another and so does not trigger a CGT event.
- Wrapping a cryptocurrency creates a different asset class for CGT purposes, and so it is taxed as a regular crypto-crypto transaction and hence triggers a CGT event.
Since the ATO has taken rather conservative positions when there are discrepancies like this, we have worked with tax professionals and came to the conclusion to categorise these sorts of transactions in the app as CGT events. You should check with your accountant to see if this categorisation applies to your individual circumstances.
In 2021, DeFi took the crypto world by storm. ‘Decentralised finance’ (DeFi) has given crypto users the opportunity to use their own crypto to earn even more crypto through liquidity pools, yield farming, staking, lending or borrowing, and more. We recommend that you speak to your accountant to determine what particular types of DeFi transactions would accrue which type of tax, but we’ll go over the high-level implications below.
To determine whether your DeFi activity is incurring capital gains tax or income tax, you will have to assess whether the action you’re taking would be classified by the ATO as ‘earning’ or ‘disposing’. If you receive interest from loaning ETH in a DeFi lending protocol for example, this would likely be seen as taxable income by the ATO. However, if you’re depositing tokens into a liquidity pool where ownership is transferred to the protocol in question, then this may trigger a CGT event. While DeFi as a whole is still a grey area in terms of ATO guidelines, at the very least you will need to keep a record of any DeFi crypto transactions for tax purposes.
As always, we are working closely with the ATO and Australian tax professionals to stay up to date with any developments in the crypto taxation space.
How can CryptoTaxCalculator help?
CryptoTaxCalculator aims to make the complicated process of assessing and following these ever evolving tax rules around the blockchain a little bit easier. From DEX & DeFi to NFT’s, we have some of the most integrations on the market. If you’re not already taking advantage of crypto tax software, try it today for free, with a 30-day money back guarantee on all purchases.
Disclaimer: The content of this guide is for general informational purposes only. It is not legal or tax advice. Viewing this guide, purchasing or using CryptoTaxCalculator does not create an attorney-client relationship or a tax advisor-client relationship.
The information in this guide represents the opinions of experienced crypto tax professionals; however, some of the topics in this guide are still subject to debate amongst professionals, and the ATO could ultimately release guidance that conflicts with the information in this guide. The information contained in this guide is based on the authors’ interpretation of the ATO’s current guidelines. Changes to the guidelines may be retroactive and could significantly alter the views expressed herein. Therefore, use this information at your own risk and for information purposes only.
Consult a professional regarding your individual tax or legal situation.
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Shane Brunette founded CTC back in 2018 after dealing with his own crypto tax nightmare. He has worked closely with accountants and tax lawyers to make it easy for fellow cryptocurrency users to be tax compliant.