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Here is an example please explain how it makes sense. But this is how I understand I vaguely might be taxed as a trader unless there is a better way:
Gary buys 1000AUD worth of Bitcoin(or)Ethereum, to buy 1000AUD worth of OPT.
OPT was 100Satoshi(or)14000Gwei when he bought it. Then when he sold it OPT was 1600Satoshi(or)224000Gwei.
Lets for argument sake, say the price of Bitcoin(or)Ethereum hasn't changed in that time to make it simpler.
Gary is holding 16000AUD (in BTC(or)ETH) from worth of OPT, at the moment he sold them back to BTC(or)ETH.
Gary sells 10% of this out to AUD, and buys 20 Alt-Coins with the remaining BTC(or)ETH.
If the ATO taxes trade by trade 20%, this trade of 16kAUD from 1kAUD, costs Gary $3200
Gary's income for the year was $1600 AUD, from selling 10% of this profit in that moment, to AUD.
Garys Alt-Coins are now worth 8x less than when he bought them. $14400 / 8 = $1800
But he hasn't sold them, so they aren't counted as a loss.
How can Gary pay the ATO $3200 in tax, with an income of $1600?
(considering Gary needs to spend days, converting 6000 trades of the 20 alt-coins, and potentially be taxed on each, if he can figure out if it was a profit or loss, and has spent the $1600 on Study fees)
---- instead of reporting trade by trade speculated profit in potential AUD per trade
Could Gary instead report, income of $1600 and holding assets valued by one of the three methods below (as from the mining thread)
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).
So income + value of assets on the final day of the income year = profit for Gary.
The first way is problematic. Because if Gary can be taxed on a trade, speculated as a profit because he sold his x-coin for a-coin worth less elsewhere. Then Gary could go through all his trades he was making for potential future increase/profit, and look at that trade and if he finds it was being sold elsewhere for cheaper, then it is determined he made a loss? Just how profit is determined?
This seems wrong, where instead income + assets reflects Gary's situation perfectly. Where Gary can then go about accumulating all the records of his trades to account for how he got x-assets worth a-value by the final day of the income year.
If gary has to account for every trade and also determine if it was a profit or loss in that moment, this may not reflect the alternate and simpler practice of calculating income/profit + asset holdings value (via the three methods).
Clarify Gary's obligations to meet ATO reporting requirments and how to fill in a tax return please.
It is known that I need to report profit/loss and I need to have good accounting of my trading.
But please specify how I do this. Is Cryptocurency sold to AUD above anything I paid for it, input as income on a Tax Return?
And are assets I held taxed or are the trades that got them to me taxed and how is this calculated or reported/figured out?
Do I need to apply a % of tax to my profit, or is this determined by the ATO by my asset+income reporting in the Tax Return?
I'm a noob, but like everyone else I just want to get this right, so I can move on without any anxiety and concerns.
I thought of a great example, if taxed trade by trade how it doesn't work.
Gary could start with 2000AUD.
Bitcoin is selling for 20000 AUD, he buys is for 19950 he has made " a profit "
He sells his Bitcoin all to Ethereum, the going rate is .07 BTC per ETH, he finds a price of .068 he has made " profit "
Bitcoin dives, and is selling for equivalent 10000 AUD (irrelevant the price to ETH), he finds a rate of 9800 AUD and he has 'profited'..
blahblahblah. the ATO thinks Gary has made 20 million dollars profit. Gary has 20bucks worth of Crypto, because it dove
to hell but he kept finding cheaper rates than that reported by CoinMarketCap. Badluck gary you owe two milliondollars in Tax.
Gary starts with 2000AUD, he ends with cryptocurrency worth 20AUD... he is a gambler
Or another scenario, he started with 2000AUD, bought crypto, sold some and got 3000AUD back in the bank. And is holding 600AUD worth of crypto by the end of financial year.
Gary reports 1000AUD as income and lists 600AUD as asset value of coins/shares. He provides all the trading history to back-up how he ended up with this ammount of assets.
Everything is accounted for and nothing is based on 'if' or speculation, besides getting a good evaluation for all assets. < the crucial part?
my point is and question.... if the market is trending down, but I as a trader keep finding a cheaper price than the average listed on coin market cap. won't it look like a keep making profit? crypto - crypto. lets say trading from btc to doge back and forth? (in equivalent aud).
when really by the end of financial year, lets say I cashed nothing out to AUD. and my holding value went from 2000AUD to 20AUD.
then wouldn't I be reporting profit simply because I went to the effort to find cheaper prices for each trade? so at the end I might have more than someone else who traded via the average value, but i'm still at a loss reporting profit? if this was my sole source of income, how would I pay the tax? when my income is lower than the tax, even when including the asset value?
am I not thinking about this right? Is this how the ATO would tax trade by trade? or do they also consider the drop in value overall as a loss?
I really don't think trade by trade works, because crypto to crypto has nothing to do with AUD that isn't what i'm thinking when i'm trading. I only consider that when i'm selling out. When i'm trading crypto to crypto in a down trending bear market, all i'm doing is trying to hoard more satoshi, by flipping to something falling less, or even going up more... to limit my losses.
See the main thing i'm saying is.... taxing this way, uses the Average market price against me, simply because I do not use the same ammount of effort looking for gains/cheaper prices to profit, applied to claim I made a loss, aka. buying at normal price when it was selling cheaper? If my gain is determined by average price, then the anomally is being considered, that there was a cheaper price and I found it. But my trades at 'average market value' aren't considered losses because the anomally that there were cheaper prices. that only in retrospect I would have to now hunt out, would make it a loss? But nobody does that... so i'll be seeming to profit more than loss. Where as how much I made is evident by how much AUD I gained and how much Assets I hold.
But if all my assets held at the end of financial year are valued at once by average price, then this isn't working for or against me. And all my efforts to find cheaper prices (in the past) are realized in this overall account value. Then anything I sold to AUD, above what I spent on buying Cryptocurrency, is considered Income?
I'm struggling to get my head around this still, but as a trader this makes sense to me? Can someone verify if my thinking is correct? That I would be penalized for finding a cheaper price even if I don't end up in profit? I'm fine paying tax, but not when I can't afford to pay it. Maybe i'm forgetting that my spending on Cryptocurrency would be offset by each determined 'profit' in AUD 'if sold'.... at time of trade?
Can someone clear up my thinking?
Well I think I figure out that the ATO doesn't care if I got a good price, they just care of THE price I got, to determine the value of the thing i'm disposing of to get that "good price" next asset. Which will be the price I then compare with when I sell that thing.
Thanks brain. But now I need help with the other things... are my unrealized gains lumped in with my AUD realized gains (safely in my bank), or do I put these incomes in two different places in a tax return? Is it clear on the MyGovTax website where to input which info? Also how do I submit all of the supporting accounting information? Is it just as a pdf attachment or something?