Do you need to declare crypto gains in your tax return?
In Australia, crypto assets are treated and taxed like shares and stocks through the capital gains tax system. Capital gains are the profit you earn from owning certain asset classes like shares, properties, and cryptocurrencies. Selling or trading these assets for a profit counts them eligible for tax.
When You Need To Compute For CGT
In Australia, CGT can be applied to the following actions or transactions in cryptocurrencies:
- Selling crypto
Here, you calculate the difference between the buying and selling prices. The difference is declared as a capital gain or loss on your tax return.
If you hold the coin for more than 12 months in an individual or trust, you’ll earn a 50% capital gains tax discount. Crypto held in super funds may be eligible for a 33.3% discount.
- Swapping or trading crypto
Switching one digital coin for another is still classified as disposal of the asset, so CGT can still be applied to it. The ATO treats Tether as a regular cryptocurrency, thus the same CGT rules apply.
- Gifting crypto
Sending digital coins to another person is still considered as disposal of the asset. The CGT for this is calculated by the difference between the AUS cost price and the asset’s value at the time it’s gifted.
If you’re the receiver, you must record the AUD value of the asset at the time you obtain the cryptocurrency. You’ll need this to calculate for the CGT when you dispose of the coin in the future.
CGT Exemptions on Crypto Transactions
- Buying crypto
You don’t have to pay tax until you dispose of the asset. So long as you hold on to your crypto investment, you won’t need to declare tax returns.
- Personal use
You may not have to declare CGT if the cryptocurrency is used to purchase goods. This includes buying goods from a seller that accepts cryptocurrencies.
However, the transaction value is only limited to below AUD 10,000. This means that if you buy a car valued over AUD 10,000 using your Bitcoin, you’ll have to declare the purchase on your tax returns. You’ll be calculating the difference between the price at disposal and the cost of acquisition. Otherwise, if you only buy pizza for less than AUD 10,000 using your Bitcoin, you won’t have to declare the transaction in your tax returns.
CGT does not apply for cryptocurrency donations. You can even claim a tax deduction if you use your crypto holdings to donate to a cause. To calculate the deduction, you still have to compute the AUD value difference between the purchase and donation dates. Crypto donations have to be reported as deductions on your tax return.
Crypt Recordkeeping For Tax Returns
To properly declare your returns, you need to record every transaction you make with your crypto assets. The ATO requires you to keep a record of the following information:
- Date of transaction (buying, selling, trading, mining, etc.)
- The AUD value of the digital coin at the time of the transaction
- The purpose of the transaction whether it’s a purchase, donation, or gift
- The entities involved in the transaction or their crypto address if anonymous
- Receipts that prove the transfer or purchase of the crypto
- Digital wallet records, exchange records, and legal records
- Software cost of accounting software
If you need help with filing for tax returns on your crypto assets, it’s best to enlist the help of a tax accountant.