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Re: Cryptocurrency: Using cyrptocurrency gains to buy a house/buy personal products

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Do you have to declare bitcoin if it was just for personal consumption and not involved in a profit undertaking scheme?

 

If you bought bitcoin for +$10 000 do you have to declare it & is it taxed? And at what rate?

 

Thanks, Lach

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Hi @Lach,

Thanks for your patience while we worked with specialist areas to clarify our response.

 

Put plainly, if you buy cryptocurrency with the aim of making a profit, the cryptocurrency will not be a personal use asset, regardless of the nature of the asset(s) you acquire when you dispose of the cryptocurrency.


Working this out always depends on the particular facts and circumstances of each case. You’ll need to consider the purpose for which the cryptocurrency was acquired and kept and what the cryptocurrency is used for. It does not just depend on the nature of the assets you purchase when disposing of the cryptocurrency. The basic rules are as follows.

  • Cryptocurrency that is kept or used mainly for the purpose of profit-making or investment is not a personal use asset.
  • Cryptocurrency that is kept or used to facilitate purchases or sales in the course of carrying on business is not a personal use asset.
  • Cryptocurrency that was acquired and is kept or used mainly to make purchases of items for personal use or consumption may be a personal use asset.


Remember, if you do make a capital gain from a cryptocurrency that is a personal use asset, the capital gain is still only disregarded if the cost you incurred in order to acquire the cryptocurrency is $10,000 or less.

If capital gains tax does apply, it won't treated as a separate tax - you'll report any capital gain in your tax return, where it'll be added to your assessable income and may increase the amount of tax you need to pay. Because tax isn't withheld from your salary and wages to cover capital gains, you may want to work out how much tax you'll owe and set aside sufficient funds to cover the amount. Special rules apply in calculating capital gains, and you'll need to ensure you keep accurate records to help you complete your tax return.

Hope that helps!

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Hi,

 

it is quite easy to understand that any profit or gain that a person may incurr from trading cryptocurrency will not be subject to CGT as long as it is used to pay for personal use such as paying bills, buying online, etc.

 

my question:

How does tax apply if the money taken from the exchange is used to by a house?

 

Scenario:

 

John Citizen bought $1000 of cryptocurrency assets, held if for a period, and sold his assets into the exchange for a profit.

the money then goes to his bank, and is used to purchase a house as down payment. Would John be subjected to CGT/GST?

Would John be asked to supply any information when he lodges his tax return about his crypto assets?

 

Would be great to have these questions answered.

 

THANKS

 

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I’m looking for an answer to a very similar question
I’ve posted in a new thread here
https://community.ato.gov.au/t5/Cryptocurrency/Another-crypto-question-regarding-house-payments/td-p...

Hopefully if they answer my question you will get an answer too
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Hi There; Amanda has provided some excellent advice and helpful lnks on this thread.

 

Please remember; By including the term "trading Cryptocurrencies" in your intial paragraph it implies someone is using crypto A to purchase crypto B in order to realise a profit from the exchange. This scenario involves potential profits and loss formt he endevour and are required to be reported.

 

If crypto A is used to buy crypto B because crypto B is a more favourable medium for that person to pay for personel use items then it meets your requirement of no CGT implications. I buy Bitcoin so i can then use BTC to purchase Litecoin and use Litecoin to pay a utility bill; the audit trail is clear for all to see...

 

In the interest of making the distinction clear for fellow community members...Smiley Happy

 

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Hi @KNG121189,

 

Thanks for posting! We appreciate your patience as we worked through your question.

 

In the scenario you outlined in your original post, John would be subject to CGT and the personal use asset exemption would not apply.

 

The personal use CGT exemption could apply if John bought a sufficient amount of cryptocurrency in order to buy the house with cryptocurrency and then promptly exchanged the crypto for the house. In such a situation this would be accepted as a situation where John was using “bitcoin to purchase goods or services for personal use or consumption.”

 

However, if the original intention of the purchase of the cryptocurrency was to make a profit, the exemption does not apply.

 

Thanks.

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Thank you all for your replies.

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I kinda get a bit of confusion here around 'if I sell my BTC for AUD -- and then buy .et cetera'... it doesn't matter if you buy a house, pony, lambo, pikachu, holiday, medicine, massage, jar for tears with your AUD... as soon as you sold your BTC that was a disposal and you were either a hobby or business trader.. or investor if you held it for more then 12months prior.

buying crypto to use on personal use items applies if you directly trade your BTC for a house, pony, jar for tears. and once you have traded more than 10k worth of crypto for personal use items, the exceptions runs out.

that's my understanding anyway.

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No expert ...

Did I make, own, buy, sell, swap, or use to buy something else or get paid by someone for something else crypto currency in the year?

Am I in business? Use the business rules.
Am I trying to make a profit? Use the commercial intent rules.
Else use the Personal Use Asset rules.

It’s been a while since I reviewed the topic but if not that is a likely structure for all this I would consider.

In terms of a personal situation the private ruling path would give your certainty.

Another approach if it is not clear is to calculate your tax obligations with all possible treatments. If one approach sees you paying the most tax then it’s unlikely you’d get complaints from the ATO on choosing it, because at worste you would get a refund when audited? If they all give the same result then throw a dart?

That’s probably a more practical methodology than a legal methodology but in the end it all depends on how much you’re talking.

If there is more money involved then pay for advice?
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Hi @treefairy and @Jack1

 

Thanks for your comments. We've recently updated our knowledge base article Can cryptocurrency be a personal use asset? to provide a simpler explanation with some handy examples to demonstrate when the 'personal use asset' exemption can be used. 

 

There are limited situations where you can claim this exemption - cryptocurrency is really only a personal use asset when you acquire it to make personal purchases. If you were to buy, say, $2000 of cryptocurrency in order to purchase concert tickets or parts for your computer, this would be considered to be personal use and you'd be exempt from the CGT on that transaction. 

 

If you bought $2000 of Bitcoin in order to acquire different kinds of cryptocurrency, then hold on to all of your cryptocurrency to see how the market goes, you're considered to be an investor even though your transaction originally cost less than $10,000. When you purchased the Bitcoin, you had already made a decision to use this amount to earn assessable income. Your cryptocurrency is considered to be a capital asset, and CGT will apply each time you dispose of it. 

 

One final point is that 'disposal' does not mean 'sell', and that the market value substitution rule may apply when you dispose of a capital asset. If you're considered to be an investor for CGT purposes, and you trade your bitcoin for something else - whether it be a house, Lambo or jar of tears - you're still taken to have accepted the market value of the cryptocurrency in exchange for the item. This means that if you use $50,000 worth of bitcoin to purchase a Lamborghini, even if you don't cash out into fiat, you're considered to have disposed of $50,000 worth of a capital asset and you'll need calculate any capital gain or loss on the transaction. 

 

This rule also applies if you give your crypto to someone as a gift

 

Hope that helps!

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Say Bob owns 1 BTC and he then goes on an exchange and swaps 0.33522 BTC for 4 Litecoin (LTC). For the purposes of income tax is the cryptocurrency owned considered a single asset, no matter what crypto is owned?

 

Can Bob just say (paraphrasing) "I bought 1 BTC for $10,000 in November from X exchange and then sold all my crypto for $12,000 at X exchange for a net profit after broker fees of $2000"?

 

Or does he need to give the details of every single crypto > crypto swap he's made since making the initial fiat conversion? If so, does he need to find a value in AUD for each new cryptocurrency purchased? How would this work in terms of reporting gains/losses?

 

Thanks!