Regulatory bodies around the world are scrambling to keep up with the rapidly evolving blockchain industry, driven largely by the massive amounts of profits generated by cryptocurrency traders. With new crypto-millionaires being minted by the thousands, it’s easy to forget about the potential tax implications of digital currency under Australian tax law.
Also see our Top 10 Crypto Tax Return Software solutions for Australia
Countries such as the US have taken a heavy-handed approach to the taxation of cryptocurrency gains, with trading producing capital gains or losses. In a move sure to drive crypto users toward tax avoidance, the United States IRS intends to treat every transaction and each individual token exchange as a taxable event.
The largely unregulated nature of cryptocurrencies combined with the difficulty in connecting blockchain-based transactions to real-world identities has created an environment in which few individuals choose to report their cryptocurrency earnings to the government. In the United States, fewer than 1,000 crypto investors submit cryptocurrency gains tax reports annually.
Determining how and when to report your cryptocurrency can be a complex issue in Australia, as the entire marketplace is currently a grey area. It’s safe to assume, however, that if you’re generating large amounts of capital on the crypto markets then the Taxman is going to want a slice of the pie.
In this article, we’ll take a look at the Australian tax rules for Bitcoin and other cryptocurrencies and break down the best approach to ensure you’re keeping the ATO happy.
Is Cryptocurrency Taxed in Australia?
The Australian Taxation Office has recently released a convenient guidance paper that delineates its perspective on cryptocurrency— specifically Bitcoin. It’s safe to assume that the rules set out in this paper hold true for most cryptocurrencies. In short, the ATO believes that Bitcoin, Ethereum, and all other cryptocurrencies are a “form of property” and are thus taxable.
A spokesperson from the ATO has commented on the taxable nature of Bitcoin:
"Any financial gains made from the selling of bitcoin will generally be subject to capital gains tax (CGT) and must be reported to the ATO".
According to the ATO, the office will be actively seeking out individuals that attempt to avoid paying tax on crypto profits.
"The ATO is here to help those that are genuinely trying to meet their tax obligations. However, where people attempt to deliberately avoid these obligations, we will take strong action."
How the ATO plans to identify these individuals, however, is unclear. The ATO currently has access to a range of powers that allow it to investigate “unexplained wealth and conspicuous consumption that may arise through profits derived from cryptocurrency investment”. There has been no mention of the ATO using platforms such as Chainalysis to identify crypto tax evaders, as is currently used by the US Internal Revenue Service.
Many Australian cryptocurrency investors mistakenly believe crypto profits are tax-free, which could have serious tax implications.
If you were to cash out on a massive upswing and receive a wire transfer of $50,000 AUD into your Australian bank account tomorrow, you’d immediately be slapped with the maximum tax bracket— as well as draw the unwanted attention of the Australian Transaction Reports and Analysis Centre, or Austrac, which has recently been given a green light to monitor cryptocurrency exchanges.
The ATO’s Perspective on Cryptocurrency
The ATO equates transacting with Bitcoin to a “barter arrangement”, and thus the sale and purchase of cryptos such as Bitcoin are no longer subject to GST:
“Transacting with bitcoin is akin to a barter arrangement, with similar tax consequences. Our view is that bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.”
Bitcoin is viewed as an asset for capital gains tax, however. As a result, you’ll need to keep a log of transaction information that includes:
- Transaction dates
- The value of the transaction in AUD taken from “reputable online exchanges”. These exchanges aren’t listed, but it’s likely that a highly reliable source such as the Chicago Mercantile Exchange Bitcoin Reference Rate is a safe bet
- The purpose of the transaction
- The addresses involved in the transaction
There are a number of ways to use this barter arrangement definition to purchase high value goods without incurring the immediate wrath of the ATO. Melbourne-based car dealership MotorBiz makes it possible to purchase vehicles with crypto— but if you start driving around a brand new Lambo bought with crypto you’ll definitely raise some eyebrows at the tax office.
Personal Cryptocurrency Tax in Australia
Personal use of Bitcoin (and, assumably, other cryptocurrencies) is not subject to GST or income tax. The definition of “personal use” is limited to paying for goods or services in Bitcoin, such as online shopping. This won’t allow you to avoid paying stamp duty by buying a luxury property with Bitcoin, however- “personal use” transactions are capped at $10,000.
HODLing on to your crypto investments for more than 12 months will likely furnish you with a 50% capital gains tax discount, but the ATO doesn't appear to have decided yet on what counts as “investing”. According to the ATO website:
“If you are not carrying on a business of Bitcoin investment, you will not be assessed on any profits resulting from the sale or allowed any deductions for any losses made. However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income.”
It’s unlikely that a full-time day trader would be able to deny the fact that they are undertaking a profit-making endeavor. If you suddenly discover a wallet of long-forgotten Bitcoin stashed away in a cold wallet somewhere, however, it’s arguable that you’d be exempt from CGT on the resulting profits should you sell.
Cryptocurrency Tax for Businesses in Australia
Using Bitcoin and other cryptocurrencies for business use transactions is subject to the same barter and countertrade transactions tax ruling process as receiving non-cash consideration. This means that if you choose to accept payment in cryptocurrency at your business, it’s likely that you’ll be charged GST on cryptocurrency received.
Purchasing business items with cryptocurrency, such as trading stock, entitles crypto users to a deduction based on the arm’s length value of the items purchased. All cryptocurrency generated “in furtherance of your enterprise” however, is subject to GST.
It’s possible for employers to establish valid salary sacrifice arrangements with employees under the Fringe Benefits Tax Assessment Act. This allows businesses to pay employees in Bitcoin and other cryptocurrencies as a “fringe benefit”, but without such an agreement any crypto paid as wages is subject to normal PAYG obligations.
The Business.gov.au website provides a simple guide for businesses interested in accepting Bitcoin for goods and services, delivering a surprisingly insightful and streamlined breakdown of how to earn, store, accept, and pay Bitcoin.
Mining cryptocurrencies is viewed as a business activity, and as such any income generated by selling crypto generated by mining would be included in assessable income. Fortunately, any expenses incurred with respect to mining activity would be allowed as a deduction— making it possible to deduct those extremely high electricity bills and expensive ASIC units from your tax bill.
There are a number of tools that streamline the cryptocurrency reporting process. These software suites generally integrate with existing exchanges and are able to pull transaction data and generate spreadsheets for simple reporting.
Crypto.com Tax Crypto.com Tax is free online crypto tax software that helps you produce crypto tax reports. It has full integration with popular Australian exchanges & wallets to import your crypto transactions for buying, selling, trading, gifts, airdrops and more.
LibraTaxis currently a popular cryptocurrency tax reporting tool, although it is designed primarily with US residents in mind. LibraTax is able to track crypto activity and synchronize with a range of platforms including Coinbase, GDAX, Blockchain.info, BitGo, and Bitstamp.
The most convenient feature of LibraTax is the option to enable transaction uploads of all cryptos into a spreadsheet format, which helps to keep on top of the ATO’s transaction log requirements. Libra is also able to generate acquisition, disposal, and balance reports and, most importantly, it’s completely free.
BitcoinTaxes is a less popular solution, but is designed to be compatible with various international taxation systems. BitcoinTaxes imports transactions form Coinbase, Gemini, Circle, Bitstamp, BTC-e, Bitfinex, Kraken, and more, as well as importing mining income— which is taxable under the ATO’s crypto tax rules.
Bitcointaxes supports AUD, and can calculate data in accordance with the Australian tax year. The only drawback to the BItcoinTaxes solution is that it’s not free— individual accounts begin at $29.95 USD annually.
While it’s possible to use platforms such as LocalBitcoins to trade Bitcoin completely anonymously for cash, it’s always best to maintain a forthright approach to income declaration.
If you’re a casual or intermediate investor then keeping a log that conforms to ATO requirements and submitting them as part of your report at the end of the tax year should suffice. If you’re investing larger amounts or are seeking more complex advice, then For further insight or taxation advice, contact one of our recommended cryptocurrency taxation specialists.