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

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Devotee

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Replies 20

Hi everyone,

 

It’s great to see so much interest in how tax applies to cryptocurrency! We really appreciate your questions, and we’re learning more about the kind of information you’re looking for with every post.

 

Cryptocurrency is constantly evolving and changing, and we want to make sure that we’re providing information you can rely on. We’re working with specialist areas in the ATO to get the answers you’re looking for, but there’s been a huge increase in enquiries over the last few weeks and it may take us a while to get back to you.

 

If you’ve posted or subscribed to a thread about cryptocurrency, you’ll get an email when we add a new response – you can subscribe to a post by signing into your account and clicking the ‘Topic options’ icon up in the top right hand corner of the post you’d like to follow. Select ‘Subscribe to RSS Feed’ to get updates.

In the meantime, you can find general information on the tax treatment of cryptocurrency on our website, or contact our early engagement team if you need personalised advice to help you manage your tax affairs.

 

Thank you so much for your patience and your support.

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Devotee

Replies 2

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!

20 REPLIES 20

Initiate

Replies 5

i will ask a few i keep seeing being asked in social media:


Is this information correct as i know thousands are working on what it says:
https://www.youtube.com/watch?v=tEMxdTz7jE4

 

1a) is a crypto to crypto swap/trade a taxable event?

b) if you are considered to be a trader for taxation purposes do you pay tax on profit from this event even when it has not been transferred back to AUD?

 

2) How many trades per year can you make crypto to crypto before you are considered a "trader"?


3) How many trades can you make before you are looked at "conducting business activity"?


4) Is there going to be room ever to consider Crypto a Hobby if under a certain $ value?


5) If Crypto the point of crypto currencies is to trade value peer 2 peer and many see it as an alternative or the future of money or transferring value, how are you expected to learn & explore the different crypto tokens and their associated technologies they offer if you cannot trade between them without being labelled a trader for taxation purposes?

 

6a) If you are a trader is it correct that you have to pay tax on your profits of your "trading stock/crypto" at the end of each finacial year even if it has not been transferred back to $AUD?
6b) Do you then pay CGT when you cash out of your position back to $AUD

7) Same question as above if your trading is considered to be "business activity"


8) if you consider yourself an investor but trade a small amount of your holdings reguarly are you now considered a trader?
This will clear up allot of misinformation and misinterpretation of information provided.

Cheers

Initiate

Replies 4

I feel these questions are important to be answered because i know people who have invested house deposits, borrowed money and even SMSF money. People are pouring money in at an incredible rate as you would know from tax recieved from exchange fees (and your only getting gst on 1% or less of the money being put in). I would not like to see mum and dad investors or those speculating in this to finally realise the dream of owning their own home. Only to find out at after the fact that their activities were infact fraudulent and that their new house will be sold off on them. Or if bitcoin were to crash to $1000 tomorrow and people to loose their holdings to find out that they may still have tax obligations on some of their trading profits Even though they may have never cashed out. Or the families who thought that buying alt coins were acceptable as part of spending their personal assets only to be classified as traders and then have it affect things like family assistance payments or their obligation to the medicare surcharge. Or the honest hard working family men /women that think they are investing by making trades - hit it big, cash out and spends it all to find out what his or her real tax obligations were. The finacial pressure already on people for living exspenses, housing affordability etc are real... this will break people. It is unethical to have such vague and limited informations and guides on this avaliable. This is average people having a gamble, prepared to pay a fair share of tax. Make it simple and set the record straight if information offered through social media is wrong tell them! Don't wait for people to do the wrong thing at tax time, give them the opportunity to have a few months to work out their full obligations. There are people making 10 trades a day, who think that they will only be liable for CGT when cashing back to AUD. But from what i have read they would be considered to be trading if not conducting business. If people feel over taxed or treated too harshly they will look to conceal their holdings and trade to privacy coins to hide profits - and they probably will. We all need tax for our schools and our hospitals and to maintain our roads. We need this to be clear cut, straight forward and delivered ASAP. Release a FAQ to go with the guide already online outlining how you treat crypto with real world examples. You say that it is not money, but you tell businesses how to accept it or pay their staff, it is a personal asset until it isn't.. It can be an investment asset or trading stock. Explain this to the people who have never invested in their life or been given wrong information on their obligations. I don't mean to sound so dramatic, but i am an average joe and i i know these people so does everyone else. That is painting on the wall for a big problem to me.

Megastar

Replies 0

Hi Amanda,

 

Thank you for your time in reviewing our questions on cryptocurrencies. I look forward to seeing some specific responses.

 

Like myself, I'm sure many of the people here have already read the ATO guide on tax treatment of cryptocurrencies. The problem is that the guide tends to leave more questions than it answers. May I make a few suggestions:

1) Firstly, the guide should not be referring to Bitcoin specifically. Alternative cryptocurrencies have boomed over the last couple of years and the tax treatment of all of these should be equal.

2) There needs to be *objective* criteria that can be used to determine whether a holding of cryptocurrency is a personal asset. What *specifically* makes it one or excludes it from being one? How *specifically* can it be disposed?

3) There needs to be *objective* criteria to determine whether one is in the BUSINESS of trading or mining cryptocurrency as opposed to a hobby. For example; "mining more than $10000 (valued at the time of mining) in the year would be considered a business". However, using the ATOs guide: https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Are-you-in-busines... most small traders and miners would probably assess themselves as hobbyists, and yet I have seen articles that state essentially if you are mining the ATO will regard you as being in the business of mining. So which is it? Statements like "if you are mining you MAY be in the business of mining" are worse than useless. We need SPECIFICS. It can't just come down to the whim of someone in the ATO and how they happen to feel on the day.

4) Suggesting that individuals seek a private ruling is not really helpful. The individuals who are asking these questions are trying to do the right thing and determine their tax obligations (unlike probably a large proportion of cryptocurrency holders who attempt to go under the radar), and, rightly or wrongly, may perceive that identifying themselves to the ATO could have them targetted for an audit.

Newbie

Replies 3

I agree exactly, looking into cryptocurrencey there is many different ways to invest like lending platforms and cloud mining but most of them say you have to buy bitcoin first the trade to them for there coin in order to invest but there contract's last for 2 years in some circumstances so how could you declare the profit on your taxes and there interest could earn you a lot of profit but it could also loose all of you initial investment aswell . My question is how can you declare how much profit you are going to make if you don't know how much it will be or not as it is a gamble if you will make any at all. Thank you.

Initiate

Replies 2

Also it' hard to determine a coin value when you trade coin for coin exactly because you are using two coins that are fluctuating considerably and a foreign exchange rate.  I traded a coin last night that literally the movement between the two coins moved almost 10% because one coin was dropping and one increasing and because the volume of trading on the order book was spread out I'm actually unsure what my final buy price is so I used the coinmarketcap figure which by my calcs seemed a bit off for what I got anyway but it's the best i have.

 

This taxable event between coins is going to be a nightmare to manage for records.  Feels like the ATO needs to review this as it's a problem and also they are doing themself a disservice from losing profits to additional admin.

1) losing profits because I will have to cash out each tax year enough to cover my tax bill whereas otherwise my profits i would reinvest hence I would have a larger pool and thus when I finally cashed out would have a bigger tax bill

2) additional admin because ATO is going to have to audit that we have used the right values at purchase price, with the right exchange at the time coin to coin was transferred and secondly all the extra transactions they will have to review rather than coin to fiat and back.

 

For property, assets and shares it makes sense that the 50% discount starts after a year because that is a reasonable time but a year in crypto world is an eternity so this needs to be looked at.  Now I have to pay 49% tax on all my profits because I trade coins monthly on dips and tops.  Even if they turned around and said anything on cryptos is 33% from day one and no 50% discount after 1 year I can understand but unless you were in from back in very early years and have 'HODL' which most people werent, the tax effect is too harsh and more importantly not tailored to the crypto world/environment.

 

Kind Regards

I'm new

Replies 0

Hello,

 

I have a question to raise

 

I have read many “expert opinions” that we can receive a 50% discount on CGT if you hold the cryptocurrency for over 12 months. My question is this any cryptocurrency held for 12months? Because if I want to purchase a particular Alt coin I need to first buy bitcoin with FIAT then exchange the bitcoin for the Altcoin and if I wanted to cash out to FIAT I would need to exchange the Alt Coin to Bitcoin before I can cash out to AUD. So does this mean If I wanted to exchange crypto to AUD that I would have to 12months in advance exchange the Alt coin to bitcoin before exchanging to AUD to qualify for 50% discount of CGT?

 

May I add that the ATO page on Tax Treatment of crypto in Australia page is somewhat open to many interpretations in the community and hopefully will be updated and updated regularly.

 

Also could you pass this on to the specialised task force that I read about today – Could an easy option which is a win/win to Australia and those investing in cryptocurrency (in my eyes) be that on cashing out of you are expected to pay x% in tax, if using for personal use a different x% in tax, if mining another x% in tax, if a recognised trader for business then x% in tax. Just don’t get greedy, ATO/Australia has found another revenue stream in which majority of the population thinks isn’t real.

 

Thanks

Observer

Replies 1

Thankyou Amanda.

 

I really would like a FAQ and even some case studies on the matter as my partner and I are just very confused with all the conflicting information going around. The 'tax treatment of cryptocurrencies' article on the ATO website was too vague! It leaves room for interpretation. We just want to know what we need to do! It's in his name so he has to report it on his tax return but would just like to know how.

 

We are small fry and we are well below the $10,000 amount. Still, recently we cashed out a tiny bit to see if we even could! We have other funds in a wallet that is in more than one currency and it has been moved a few times between currencies. In our case we will have trouble working out how much of a gain that amount cashed out exactly is as it amounts to a portion of what we had in there (could work out a rough % profit I guess and extrapolate from there), but what we have in that wallet changes wildly every day! There are transaction fees etc.. on everything too. What if we used any crypto to pay for something with BPay? What if we used it to pay down a credit card debt? Is each of those a capital gain?? Can we claim losses?

 

Any help is appreciated.

Initiate

Replies 3

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.

Best answer

Devotee

Replies 2

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!

Top Solution Authors