This year has seen the ATO crack down on individuals who have been trading in cryptocurrencies, such as bitcoin. This is a reminder for those dealing in such transactions to be well aware of the taxation obligations that come about with any resulting financial gains and losses. It is imperative to ensure accurate and complete cryptocurrency tax reporting.
Cryptocurrencies are considered by the ATO to be a form of property and are therefore a CGT (capital gains tax) asset for tax purposes.
As is the case with any asset that is subject to capital gains tax, it is necessary to maintain detailed records of transactions, including receipts of purchase or transfer, exchange records, digital wallet records and keys, as well as the value of the cryptocurrency in Australian dollars at the time of the transaction.
Typically, a CGT event will occur when a cryptocurrency is sold, gifted, traded, converted to a fiat currency (such as Australian dollars) or used to obtain goods or services. Given the number of cryptocurrency transactions subject to tax, it is a danger that some of these could unwittingly slip through the cracks, so tax implications must be kept in mind whenever transacting with cryptocurrency for any purpose.
Conversely, it is also important to consider whether the cryptocurrency has been purchased for personal use (as opposed to any profit-making endeavour), as this is will exempt it from capital gains tax.
An exception arises to the treatment of cryptocurrency as a CGT asset when it is held as trading stock, or is used for business transactions. In these cases, it is considered to be held on revenue account, and its value in Australian dollars will be included as part of an entity’s ordinary income. That means that either normal personal tax rates will apply, or normal business tax rates will apply.
Record keeping for cryptocurrency transactions may appear to be burdensome and unclear at times but there are a number of resources available to assist us, including official online exchanges which offer reliable Australian dollar values of the cryptocurrency at the time of transaction.
Individuals who have traded cryptocurrencies of any amount should ideally have a system in place to track these, as the ATO has shown that it will not overlook even the most seemingly small or insignificant transactions.
CST can assist clients who trade or invest in cryptocurrencies as part of their broader investment activities.