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Cryptocurrency and CGT

Newbie

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Replies 2

Due to my naitivty, just recently I learnt that a CGT event is not just crypto->AUD, but crypto->crypto trades. This has caused me somewhat of a panic. I thought I'd try and simplify a question that may help me understand where I stand.

 

As an example let's say:

  1. I buy $1000 worth of ETH in August 2020
  2. In December, that ETH is worth $2000, and I trade it all for XRP
  3. In March 2021 my XRP is worth $3000, and I trade it for DOGE
  4. Come June 30, my DOGE has dropped to a value of $100

As I understand, there have been 2 CGT events. At point 2, where there was a gain of $1000, and at point 3 where there was a further $1000 gain.

 

My worry here is that if I didn't take profits before the crash at point 4 (with no CGT events from point 3 to 4 [EOFY]), I'm subject to pay tax on $2000 worth of gains that I don't have anymore. Worse is that what I have left would be less than the tax - essentially losing twice over. 

 

I must be missing something because this outcome would be horribly cruel!

 

 

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Community Support

Replies 0

Hi @alex1984

 

Each time you sell a capital asset, that's a capital gain event. This is the same with all capital assets, whether property, shares, or crypto.

 

In your example, you've invested $1,000. This increased in value to $2,000. You then sold them for $2,000. This means you've made $1,000.

 

You then choose to invest that $2,000 in another asset. It increases in value to $3,000. You sell them for $3,000. You've made another $1,000, a total of $2,000.

 

You then choose to invest that $3,000 in another asset. This price drops to $100, which you still hold.

 

Rises and falls in values in shares and crypto are volatile things, and this is a risk you take when purchasing and trading your crypto. You'll still be liable for capital gains on the gains you did make, even if you chose to reinvest them.

 

You can read about types of CGT events and calculating your capital gains on our website.

2 REPLIES 2

Initiate

Replies 0

Yep, unfortunately that's the way it works. If you had known you could have sold and re-bought the DOGE before 30 June and you wouldn't have had a gain.

Also if you sell the DOGE now it will be a capital loss this year, which can only be used to offset against capital gains (in this year or carried forward to future years)

Most helpful response

ATO Community Support

Replies 0

Hi @alex1984

 

Each time you sell a capital asset, that's a capital gain event. This is the same with all capital assets, whether property, shares, or crypto.

 

In your example, you've invested $1,000. This increased in value to $2,000. You then sold them for $2,000. This means you've made $1,000.

 

You then choose to invest that $2,000 in another asset. It increases in value to $3,000. You sell them for $3,000. You've made another $1,000, a total of $2,000.

 

You then choose to invest that $3,000 in another asset. This price drops to $100, which you still hold.

 

Rises and falls in values in shares and crypto are volatile things, and this is a risk you take when purchasing and trading your crypto. You'll still be liable for capital gains on the gains you did make, even if you chose to reinvest them.

 

You can read about types of CGT events and calculating your capital gains on our website.