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Re: Do you have questions about tax and cryptocurrency? Read this first!

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Newbie

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I know absolutely nothing about crypto currency, but I have just read an article about it - clear as mud - but like the query I've just replied (attached to) I am also interested to know about just making enough profit (on a pretty small scale) to pay down credit card debt and where this stands in regard to tax obligations and under tax law where it would stand. Is it classed under capital gains or as income? 

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Initiate

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Just to help ATO make better and informed decision, I will list few things which I am aware of. Even specialts accountants might not be aware of these small but very important issues.

 

1. When you exchange between assets (like Ethereum, Bitcoin, XRP etc), you do it for different reasons. Mainly its either to reduce the losses because the price can go to half in a matter of minutes OR you do it if a new technology comes up and you think its a better investment. You can also do it to increase your asset. AUD or any fiat curreny is never involved.

 

2. Contrary to what has been started in the ATO document, that you can extract the information for all transactions from the exchange - If you convert one type to another (also known as shape shifting), there is no Fiat currency (AUD, USD etc) involved and there are no way to figure that out accurately. Exchanges keep record of asset exchange (not AUD if you are not selling). Also, not everyone uses exchange to convert. There are hundereds of apps now and even paper wallet which people use. These apps use some service which the user do not even know or do not need to know.


3. Also note that when you want to exchange an asset (Bitcoin, ETH, XRP...), you create an order and that order can be executed in hundreds of individual transactions. For instance if you want to convert 1 Bitcoin to Ethereum, exchange or wallet might execute 1000 transactions to convert that and each transaction could be of different exchange value (because price chances in seconds). You cannot expect a human being to even try to put this together.


4. Instead of making it so complex for the individuals. Why not keep it simple and let us pay full taxes when we cash it out (either capital gain or income tax). But dont make it such that it becomes impossible to even pay taxes.

 

I am an engineer and have been very interested in blockchain and related technologies. It's the future so lets embrase it, lets dont make our life harder by employing old age accounting methods to the future. 

Hope someone from ATO will take this message forward and I truly hope that they will make it easy for us to pay taxes. 

Thanks for listening.

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Initiate

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Hi Sam1,

You are spot on in your post. It is impossible to keep trck of so many transactions when tradint crypto. As you say, 1 btc could be broken up into hundreds of transactions.

Your suggestion to keep it simple make sense to us, but not to the ATO, who always try and take the most difficult route.

4. Instead of making it so complex for the individuals. Why not keep it simple and let us pay full taxes when we cash it out (either capital gain or income tax). But dont make it such that it becomes impossible to even pay taxes.

All the ATO need to know, is how much you exchange for fiat, and pay tax on that as an earning. Whether you are a trader or a hobbyist, it is still an earning and should be taxed as such.

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Initiate

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ATO want to make our lives impossible.

 

They need to fix and simplify crypto to crypto trading requirements now, otherwise no one will lodge tax returns for crypto.

 

Deposit FIAT, do your trading, withdraw FIAT. Tax this. Not evey single trade. This is pathetic and stupid. Over 4,000 trades on multiple Exchanges, how can I track this over the last 12 months? Good luck.

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Devotee

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I personally don't blame the ATO, this is a revolutionary and innovative new marketplace. Imagine if you could buy JB-HIFI shares, that you can spend in store, even if the value increases of the company, and also easily sell them onto someone else for an investment in 10 other projects. It is such a fluid and open, new, industry. 

I personally think they have just received bad advice. I feel I know a lot about trading, risks and rewards... so i'm worried that even I don't understand how being taxed like this will be truthful. It could work for or against me, but it would be a miracle if it was anywhere close to spot on. Crypto to Crypto doesn't work, but Crypto in and out does. If i'm running a business, can't the crypto I hold be assets my company is invested it? I'm happy to report every deposit/withdrawal and trade, but someone needs to explain to me:

1. How to determine profit and loss on ONE trade (out of 6500 some of which are split into tiny/tiny trades due to bots and orders made up of many small users -- we're talking like 50 trades worth 20cents each, sometimes .02cent trades or less)
2. How to fill in this profit or loss into a tax return, once I figure it out? Which is seemingly impossible. 

I want anything I submit to the ATO to be absolutely accurate, so i'm going to do my best to do that. But it won't be per trade profit
on my tax return, it will be AUD income. But I will include all the tax-report information from cointracking.info, so my obligation can be deduced. 

If Gary has 500AUD above what he paid for crypto and 5k worth of crypto in assets he is holding, someone just needs to tell gary what he needs to be concerned about and what he doesn't need to be concerned about, so gary can move on with his life. Gary is just trying to afford art school, not make the heist of the century or become the next billgates or charles bianchi.

Thanks!

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Best answer

Devotee

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Hi everyone,

 

Thanks for sending us all your cryptocurrency enquiries! We're reviewing all of your questions and working with specialist teams in the ATO to get the answers you're looking for.

 

Based on your posts and comments, the top enquiries this week are (drum roll please):

 

  1. What does 'personal use' mean, and how does it apply?
  2. Lots of people switch between cryptocurrencies to get a better return. Is this a taxable event, or do I just have to pay tax when I convert the currency to AUD?
  3. How do I track transactions when I have so many? What kind of records do I need to keep? What happens if the agency I use doesn't keep the records you want?
  4. What does the ATO consider to be 'investment'? Am I entitled to tax deductions if I'm an investor?
  5. What does the ATO consider to be 'trading'? Am I a trader if I make a lot of transactions?

We're working through your enquiries, but due to the volume of questions we're receiving it's going to take longer than usual to get back to you. Keep asking, though - your questions and ideas allow us to develop content and knowledge bases to help other people out!

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I'm new

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Hi Amanda,

 

I've got a question re GST for cryptocurrency trading.

 

If I am carry on a bussiness for cryptocurrency trading, is realised profit of tradings input taxed or GST free income? If it's input taxed, is it kind of financial supply? Can I claim 75% of GST on commssion paid? If it's GST free, I will be able to claim GST on all expenses paid in relation to operating this trading business, won't I?

 

When should I realise profit of trading? Is it when it's converted back to Australian Dollar (In that case, I only need to focus on my bank account, and see what's in and out to work out my assessable income) or I need to track my profit on exchanging between different cryptoncurrencies (covert from Cryptoncurrency A to Cyrptoncurrency B and work out the value of them in AUD to determine my profit, which will create lot of record keepig work)?

 

Regards,

Li

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I'm new

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Hi Amanda,

 

I think I've found my answer here re GST.

 

https://www.ato.gov.au/business/gst/in-detail/your-industry/financial-services-and-insurance/gst-and...

 

Digital currency - claiming GST credits

Sales of digital currency are input taxed sales (financial supplies) which means that you:

  • don't pay GST on the sales of digital currency you make
  • generally can't claim GST credits for the GST included in the price you pay for anything you purchase to make those sales.

However, you may be able to claim GST credits on purchases you use to make digital currency sales in following situations:

  • if you don't exceed the financial acquisitions threshold-in which case you will be entitled to full GST credits for purchases relating to digital currency sales
  • if you exceed the financial acquisitions threshold may be able claim reduced GST credits if you make a specific type of purchase.

Reduced GST credits

A reduced credit acquisition is a specified type of purchase for which a reduced GST credit is available when you use the purchase to make financial supplies. For these purchases you can claim 75% of any GST included in the purchase price. The type of purchase must be listed, you cannot claim 75% GST credits on all your costs. Sales and purchases of digital currency are financial supplies.

For digital currency sellers, the costs associated with the following services acquired from another entity will include:

  • commission, brokerage costs or arranging services provided by entities that facilitate buying and selling of digital currencies. See Example 1 below
  • costs in relation to transaction processing, account maintenance and report generation services.

 

However, I am still not sure when I should realise the profit of sales. Could you please provide some guidelines for it?

 

Regards,

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Devotee Registered Tax Practitioner

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@AmandaE

 

I posted some complex questions nearly two weeks ago, can I possibly get a response time frame. Currently preparing some presentations for the cryptocurrency community regarding tax and I'd really like to include some of the responses.

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Devotee

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Ok... so... i've been milling over this a fair bit and think I've conquered my road block; I feel I know what the issue is as a 'trader' or in the process of flipping coins and how it might be taxed and how it should be taxed and why I feel that way.

How it is unfair to tax trade by trade -- cryptocurrency to cryptocurrency.

If a profit in a trade is determined by the price or amount I bought of something vs. the amount or price reported as an average by CoinMarketCap, both converted to AUD. 

Just because I have made a profit by going out of my way to find a cheaper price else where, this shouldn't be how and when a profit is measured, why? Because all the other times I was not trading by hunting for cheaper price, but trading to HODL... This does not mean that there was not a cheaper price available, or a way to have bought it cheaper and "profited".

Therefore it is unfair to be taxed by my initiative to find price differences. But then I'd be punishing myself to ignore them in the inverse, when reporting a loss? Which is likely because in retrospect accounting for so many trades, i'm going to use the average price, not the price I could have potentially gotten.

The issue is i'd spend as much time now, going back through historical records, for every one of my thousands of trades... to find ways in which I could have got a cheaper price, to then claim as fairly... a loss.. as the effort I put in to making the profit by noticing these differences at the time. Nobody in their right mind has the time or inclination to look for losses, only profits? So I will be taxed based on anomalies (prices differences) that I will not receive deductions for those same anomalies (possible cheaper prices).

This is why I strongly feel... as exchanging cryptocurrency is both fun and enjoyable as it is imutable and fully trackable, that any profit at the end of the day from these lucky trades will all be reflected in the alternate way of reporting.

1. Report any AUD you have from, and have spent on Cryptocurrency, and if you have gained more AUD back, then you have an income to declare (profit).
2. You must delcare all Cryptocurrency you are holding as assets, in one of the three following ways?

 

1) Cost price (All the costs to get your stock in its current condition).

2) Market selling (As if it were sold in the normal course of business).

3) Replacement cost (Valued on the final day of the income year).

Declaring the value of your assets by the final day of income year, for example along with any sold to AUD as income, would reflect everything that has happened precisely and the financial situation you are now in. As some coins can end up worth nothing but if they are delisted, you can never sell them to say they are a loss and if you sell them for 1cent when somewhere else they are 2cent, you made another profit, even if you originally bought them for 1000AUD each? If 'equivalent AUD value' is allowed to be supposed AUD profit. I could keep making profit off something i'm losing thousand on, because every trade I do I manage to find a cheaper price than else where, even if it is going down and down. When is the loss accounted for exactly?

Then there would be the accounting side, where you must get all the trading data/deposits/withdrawals you can, to account for how you have those assets, now that you have their average/potential value now.

The issue with both methods is the IF I sold, factor. Me going back to hunt out ways I made losses because I could have bought cheaper is a worse extension of this if factor, considering the way I made profit is using the 'if you sold to AUD after making that trade and it was cheaper than elsewhere you made a profit' factor, IF that is how I need to report. It might not end up reflecting the situation i'm in.

I think that makes sense to me, i've been trying to figure out why this seems to complicated for me to understand how I am to be taxed.

But the thing that makes the most sense is what I have now and how much AUD i've had come into my bank from selling back my Cryptocurrency. If cryptocurrency is alike shares, then can't it just be assessed in value and compared to how much it has increased in value since you first bought into the cryptocurrency market. Whether it is 2 coins to 200 coins, the value is all that should matter, every individual trades profit is speculative and subjective... and this is problematic both ways. Especially when talking about alt-coins.