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Re: Starting to mine bitcoin, how do I declare it all?

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Newbie

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I've started mining some bitcoin for a bit of fun and to learn about cryptocurrencies, and it is going okay, so I'm thinking about buying more gear to mine more.

 

I figure I'll spend about $9000 on equipment to setup for mining, and would hope to break even by June 30th.

If I don't cash out the Bitcoin I earn through mining, how do I declare it come June 30th?

At the value on the day in AUD or...?

Also, can I offset the equipment and electricity costs involved in earning bitcoin? The equipment would be 100% used for mining.

 

I'm confused as to how much tax I would pay, and what value to put to the ATO as it varies so much with currency fluctuations.

 

I've read the PDF file, I'm not sure what this means:

"You are required to bring to account any bitcoin on hand at the end of each income year." 

 

I consider this as a hobby, I'll probably just hang onto the coins and never really cash them out, but I don't want to get it wong re tax.

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ATO Certified

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Hi @Pedro and @SetiMaster,


Thanks for your patience whilst we received specialist information regarding your posts.


Generally, when undertaking Bitcoin mining activities, it needs to be determined by analysis of your own activities as to whether this involves carrying on a business or not, see Are-you-in-business on our website for more information. If your circumstances are such that you are in the business of Bitcoin mining you will need to treat your activity the same way as any other business activity.


If you are carrying on a business of bitcoin mining:


All reporting to the ATO must be made in Australian dollars. To convert the value of Bitcoin to Australian dollars you can use the Bitcoin value as published by a reputable exchange on the date of the relevant transaction. You can find more information on our website about record keeping for Cryptocurrency.


Where you are in the business of mining bitcoin, any income that you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income.


Any expenses incurred in respect to the mining activity – including electricity costs - would be allowed as a deduction. The cost of capital assets, such as hardware and software can be depreciated over their effective life.


If you are in business you may be able to apply the small business instant asset write-off to the cost of capital assets. For more information see Applying the $20,000 instant asset write-off or Deductions on our website.


As a miner carrying on a business any bitcoin that you acquire from mining is treated as ‘trading stock’. As in any other business, proceeds from the disposal of trading stock represent assessable income. Also, even if you don’t dispose of your bitcoin, an increase in the total of your trading stock value at the end of the year from any amounts at the start of the year is treated as assessable income, (while a decrease is treated as an allowable deduction). This is also referred to as ‘bringing your trading stock to account’ at the end of the year. There are three methods for working out the value of trading stock at end of the year. For information about valuing trading stock see information on our website about valuing-trading-stock.


Losses you make from a business of Bitcoin mining will be deductible against your other income, however losses you make will be subject to the Non-commercial loss provisions.


Your net income (roughly income less deductions) is the amount that is included in your assessable income, and you will pay tax on this income at your marginal rate.


If you have undertaken some Bitcoin mining activities in a way that is not part of a business your mined Bitcoin would constitute holding of an asset, and the Bitcoin you hold would be a be a capital gains tax (CGT) asset. This means that the CGT rules would apply. No deductions would be allowable. The CGT rules would need to be applied on the disposal of the Bitcoin. You can find more information about Cryptocurrency as an investment and how to work it out on our website.


Although you may view your mining activities as a hobby, the personal use asset exemption rules would not apply to exclude any capital gains made on disposal of the bitcoin. The exemption applies on the basis of how you use or keep the bitcoin that you have acquired from your previous mining activities. Even if your costs of mining the acquired bitcoin are less than $10,000, this would not fit within the definition of that of using or keeping mined bitcoin as a personal use asset. A personal use asset is defined as an asset “that is used or kept mainly for your personal use or enjoyment”. The primary situation that the ATO considers that Bitcoin can be used or kept mainly for personal use or enjoyment is where it is (acquired and then) kept temporarily in order to obtain personal use items- such as paying for goods or services with cryptocurrency. In your situation your main ‘use’ or ‘keeping’ of the bitcoin is not for personal use or enjoyment.


Thanks, JodieH.

 

5 REPLIES 5

Megastar

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Hi @Pedro,

 

I'm not a tax expert (just an individual trying to find out the tax implications of crypto myself) so take my opinion with a grain of salt.

 

Whether you regard it as a hobby for yourself, on the basis of what you have said here, almost certainly the ATO would consider you to be in business given that your primary intention is to make a profit (even if not immediately). Also, you would not be able to claim deductions if it were a hobby.

 

With regards to how you would declare the crypto you have mined (if you intend to HODL it all), that would be considered trading stock. As I understand it, trading stock can be valued (See: https://www.ato.gov.au/Business/Income-and-deductions-for-business/Reconciliation-activities/Account...) in one of three 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).

 

Given the volatility of crypto the only method that would make sense is the cost price method, which would essentially mean that the value would be declared as the same as all your expenses for the year so this would give a neutral position (the "income" from the trading stock would be negated by the deductions of your expenses).

 

If you were to use any of the other two methods you run the risk of a very large tax bill if the crypto were to skyrocket in value before the end of the financial year, which you mightn't be able to pay if the price crashed before you cash out.

 

Anyway, that's my understanding. Could someone more qualified (preferably ATO certified) confirm this? I would like to know myself.

Best answer

ATO Certified

Community Support

Replies 0

Hi @Pedro and @SetiMaster,


Thanks for your patience whilst we received specialist information regarding your posts.


Generally, when undertaking Bitcoin mining activities, it needs to be determined by analysis of your own activities as to whether this involves carrying on a business or not, see Are-you-in-business on our website for more information. If your circumstances are such that you are in the business of Bitcoin mining you will need to treat your activity the same way as any other business activity.


If you are carrying on a business of bitcoin mining:


All reporting to the ATO must be made in Australian dollars. To convert the value of Bitcoin to Australian dollars you can use the Bitcoin value as published by a reputable exchange on the date of the relevant transaction. You can find more information on our website about record keeping for Cryptocurrency.


Where you are in the business of mining bitcoin, any income that you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income.


Any expenses incurred in respect to the mining activity – including electricity costs - would be allowed as a deduction. The cost of capital assets, such as hardware and software can be depreciated over their effective life.


If you are in business you may be able to apply the small business instant asset write-off to the cost of capital assets. For more information see Applying the $20,000 instant asset write-off or Deductions on our website.


As a miner carrying on a business any bitcoin that you acquire from mining is treated as ‘trading stock’. As in any other business, proceeds from the disposal of trading stock represent assessable income. Also, even if you don’t dispose of your bitcoin, an increase in the total of your trading stock value at the end of the year from any amounts at the start of the year is treated as assessable income, (while a decrease is treated as an allowable deduction). This is also referred to as ‘bringing your trading stock to account’ at the end of the year. There are three methods for working out the value of trading stock at end of the year. For information about valuing trading stock see information on our website about valuing-trading-stock.


Losses you make from a business of Bitcoin mining will be deductible against your other income, however losses you make will be subject to the Non-commercial loss provisions.


Your net income (roughly income less deductions) is the amount that is included in your assessable income, and you will pay tax on this income at your marginal rate.


If you have undertaken some Bitcoin mining activities in a way that is not part of a business your mined Bitcoin would constitute holding of an asset, and the Bitcoin you hold would be a be a capital gains tax (CGT) asset. This means that the CGT rules would apply. No deductions would be allowable. The CGT rules would need to be applied on the disposal of the Bitcoin. You can find more information about Cryptocurrency as an investment and how to work it out on our website.


Although you may view your mining activities as a hobby, the personal use asset exemption rules would not apply to exclude any capital gains made on disposal of the bitcoin. The exemption applies on the basis of how you use or keep the bitcoin that you have acquired from your previous mining activities. Even if your costs of mining the acquired bitcoin are less than $10,000, this would not fit within the definition of that of using or keeping mined bitcoin as a personal use asset. A personal use asset is defined as an asset “that is used or kept mainly for your personal use or enjoyment”. The primary situation that the ATO considers that Bitcoin can be used or kept mainly for personal use or enjoyment is where it is (acquired and then) kept temporarily in order to obtain personal use items- such as paying for goods or services with cryptocurrency. In your situation your main ‘use’ or ‘keeping’ of the bitcoin is not for personal use or enjoyment.


Thanks, JodieH.

 

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Devotee

Replies 0

Thanks this is a helpful, I will make a new thread because my response isn't about mining.

Newbie

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Bitcoin mining entails the use of hashing devices to solve computational problems, which has become even more complex with the rise in demand for bitcoin. Unfortunately, this rigorous process is majorly dependent on electricity. Presently, the annual electricity currently utilized by bitcoin miners is equivalent to the electricity that powers some countries annually.

However, recent events show that bitcoin miners are changing the narrative by rapidly adopting cheap and renewable energy sources.

I'm new

Replies 0

This is really helpful. I'm quite satisfied with the answer. By the way I just started mining Bitcoin too. How profitable is it now? Should I go ahead or quit?

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