Just received the ATO cryptocurrency email? Here's what you need to know.
This guide is our own interpretation of the ATO guidance and is provided for informational purposes only. The guide does not constitute financial, tax or legal advice, and is not intended to be used by anyone for the purpose of financial advice, legal advice, tax advice, tax avoidance, promoting, marketing or recommending to any other party any matter addressed herein. For tax, financial or legal advice please consult your own professional.
Once again the ATO has decided to come down hard on cryptocurrency enthusiasts with a robo-debt style email warning letter being sent out to 350,000 Australians. In this article we discuss what this letter means and what you should do now.
The warning letter reads something like this:
If you exchanged cryptocurrency for goods, cash or other cryptocurrencies then this is normally considered a disposal for the purposes of capital gains tax. If you have disposed of your cryptocurrency you may need to report a capital gain or loss in your income tax return.
What you need to do
When you dispose of cryptocurrency you should review your records to work out if you need to report a capital gain or loss.
If you've made a mistake by not reporting the disposal of cryptocurrency you should correct your return as soon as possible. Visit our website at ato.gov.au/amendareturn for information.
You can lodge or amend your tax return by:
using our online services through myGov
asking your registered tax agent to make the changes for you.
If your income tax return is correct, you don't need to do anything. We'll contact you if we need more information.
The first thing to note is the word if. This is a blanket warning letter going out to cryptocurrency users to "educate" the market. Our own research at CryptoTaxCalculator indicates about 60% of the market doesn't know their crypto-to-crypto trades might be taxable events, and the rest are mostly pleading ignorant until they are "notified" by the ATO. So if you get this warning email and you don't know what the ATO is talking about don't freak out. Maybe you don't have any taxes. But maybe you do. It is time to make sure; so read on and also check out our guide for more information.
This is probably a taxable event. If you sold cryptocurrency for another cryptocurrency the ATO considers this disposal of an asset and is taxable. This is the case even if you did not convert your cryptocurrency back to Australian dollars. This includes transactions such as Bitcoin to Ethereum, and even Ethereum to US Tethers.
If you dispose of one cryptocurrency to acquire another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. Because you receive property instead of money in return for your cryptocurrency, the market value of the cryptocurrency you receive needs to be accounted for in Australian dollars.
As stated on the ATO Website as at 26 July 2020.
Sometimes exchanges will give you rewards for holding cryptocurrency on their platform. This is considered income from a tax perspective and is taxable regardless of whether or not you sold the cryptocurrency. It is very similar to earning interest in your bank account, or making a divident on stocks. To do this you will need to work out the value of the cryptocurrency at the time of receipt in Australian dollars.
A forger who is selected to forge a new block is rewarded with additional tokens when the new block has been created. The additional tokens are received from holding the original tokens. The money value of those additional tokens is ordinary income of the forger at the time they are derived.
Some projects 'airdrop' new tokens to existing token holders as a way of increasing the supply of tokens (for example, Pundi X and Tron). The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived.
As stated on the ATO Website as at 26 July 2020.
- On the 1st January 2018 you receive 50 Tron into your exchange account as part of an airdrop promotion.
- At the time of receipt Tron was worth $1.50 in AUD.
- You need to declare $75 of income for the 2018 tax year.
- On 3rd June 2020 you sell the 50 Tron for $4 in AUD.
- You have made a capital gain of $2.50 per Tron.
- Your capital gain for the 2020 tax year should include the $125 AUD gain from Tron.
Mining is quite a complex case. In our app mining is treated differently to airdrops and staking rewards. If you mined Bitcoin then the cost of the Bitcoin is considered to be zero dollars. And your expenses are the cost of running a mining rig and potentially any capital expenses e.g. ASIC mining equipment. When you sell Bitcoin your capital gain is the total value of the Bitcoin at time of sale. There is still a lot of controversy around running a mining operation and using cloud computing to run a staking node. If you think you fall into this category but you are not sure you should speak to an accountant specialising in crypto and/or apply for a special ruling from the ATO. You can do a lot of things here from a tax perspective, such as running your mining operations as a business.
Well you probably need to declare this ay? Just make sure you are not calculating your taxes based on the total amount going back into your bank account minus the amount you put in. This naive "cashed out" method is, in our humble opinion, NOT the correct way of calculating your cryptocurrency taxes. Remember there are a lot of other transactions you need to consider, especially crypto-to-crypto trades.
Please refer to our CryptoTaxGuide for more comprehensive information regarding tax obligations that arise when cryptocurrency is converted to $AUD.
You are probably misunderstanding the cryptocurrency personal use rules put out by the ATO. The ATO basically has a special provision that says that if you purchased cryptocurrency with the intent to purchase goods or services with the cryptocurrency, and later purchased those goods and services within a reasonable period of time, that this is the use off cryptocurrency as a currency. This does not mean you are tax exempt if you have less then $10,000 dollars in crypto currency. The actual quote from the ATO as of July 27th 2020:
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.
Read more about personal use rules below.
You are probably going to get taxed here. One of the most misunderstood rules by the ATO is the personal use cryptocurrency condition. If you bought 1BTC at $1,000 and now that BTC is worth $9,000, and you go and buy a laptop with that BTC, it is our opinion that you probably just triggered a capital gain. The ATO is not going to let a 9x gain go untaxed. If you want you can try to argue with them and file for a private ruling but we have not seen much success with these types of attempts. The idea behind this type of provision is that if a website is only accepting BTC (for example a Torrent site only accepts BTC for payment) and you go out and buy BTC and use that BTC shortly thereafter to make a purchase of said pirated torrents, then you have a good chance of claiming personal use. But be warned. The ATO is very strict here.
You need to have a look at amending your tax return. Like the letter suggests, you can even do this on the myGov website or you can ask your accountant update your previous tax returns.
If you like the average user you might have between 50-1000 transactions, sometimes across multiple exchanges. The ATO expects you to record these transactions in Australian dollars. Often crypto-to-crypto transactions are not even priced in USD, let alone AUD. Needless to say this is extremely painful to do manually. Instead you can use our super awesome Crypto Tax Calculator to do all the heavy lifting for you. The standard plan only costs $127 with an annual subscription and will probably save days of your life, limit stress induced backpain, and make you more aware of your tax obligations.
Mining is treated differently to airdrops and staking rewards. If you mined Bitcoin then the cost of the Bitcoin is considered to be zero dollars. And you expenses are the cost of running a mining rig and potentially any capital expenses e.g. ASIC mining equipment. When you sell Bitcoin your capital gain is the total value of the Bitcoin at time of sale. There is still a lot of controversy around running a mining operation and using cloud computing to run a staking node. If you think you fall into this category but you are not sure you should speak to an accountant specialising in crypto and/or apply for a special ruling from the ATO. You can do a lot of things here from a tax perspective, such as running your mining operations as a business.