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Re: Capital Gains Tax on Crypto currency

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Newbie

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Hi,I have been struggling to find an answer to this topic.

If I make an investment in crypto, say $50,000, that crypto investment goes up to now be worth $1,000,000.

To my understanding I will be up for CGT on 950,000?

That is calculated on my own tax rate, obviously it will put me in the highest tax rate bracket?

Is it true that if i hold for 12mths that tax is halved?

Is there any point in time where cgt will not be payable. 2 years, 3 years etc?

I also have read that if i was to sell some of the crypto to buy a car for example cgt woldnt be payable on that? If that is true if i was to sell the crypto to buy a house would that be treated any differently?

Thankyou

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ATO Certified

Devotee

Replies 5

Hi @Rocketrod

 

Thanks for your questions! You’ve got this pretty much all worked out, but we wanted to take the time to flesh out some of the detail to help you (and others!) get your tax right. 

 

Before we start, a couple of caveats: 

  1. The following information applies if you’re an investor in cryptocurrencies, rather than a trader. If you’re a trader, you’re considered to be in the business of trading cryptocurrencies, and different rules apply
  2. We’re using your example here, but obviously different scenarios will apply the information here differently. We have a range of tools and guides available, so we encourage you to do your due diligence and make sure you understand how the rules apply to your situation. 

 

You’re correct that cryptocurrency is not a form of money/currency for tax purposes. Under existing legislation, cryptocurrency is considered to be a capital asset, and capital gains tax rules apply on the disposal of these assets. 

 

If you invested $50,000 into cryptocurrency and made $1,000,000 on your investment, the original $50,000 would form part of your cost base. The cost base includes a range of expenses associated with purchasing (or ‘acquiring’) an asset: 

  1. Money paid or property given for the CGT asset
  2. Incidental costs of acquiring the CGT asset or that relate to the CGT event
  3. Costs of owning the CGT asset
  4. Capital costs to increase or preserve the value of your asset or to install or move it
  5. Capital costs of preserving or defending your title or rights to your CGT asset

 

If you’ve paid other capital costs to acquire or own your cryptocurrency, these will also be included into your cost base. 

 

Once you’ve worked out your cost base, you take its value from your capital proceeds (what you make on the disposal of your cryptocurrency) to establish if you’ve made a capital gain or a capital loss. If you’ve made a loss, you’ll also need to work out your reduced cost base.

 

If you make a capital gain, you’ll need to work out if you’re entitled to a CGT discount. If you’ve owned your cryptocurrency for more than 12 months, you can either discount your capital gain by 50% or establish what indexation factor you can apply against your capital gain. You use whichever method provides the best outcome for you. 

 

If you’ve owned your cryptocurrency for less than 12 months, you must use the ‘other’ method, where you simply subtract your cost base from your capital proceeds. 

 

Once you’ve worked out your capital gain or loss: 

  • You either use your capital loss against an existing capital gain, or carry it forward to a future year. If you carry a capital loss forward, you must apply it to your next available capital gain. 
  • You add your capital gain in with the rest of your taxable income, and you pay tax on your total taxable income for the year. The tax will be applied at standard marginal rates

 

Using your example: 

  • If your total cost base was $50,000, you take this away from $1,000,000 for a capital gain of $950,000. 
  • If you held your cryptocurrency for more than 12 months, you apply a CGT discount of 50% = $475,000 net capital gain
  • Add your net capital gain to the rest of your taxable income - let’s say your total taxable income for the year was $97,663 because you had some deductible expenses. $475,000 + $97,663 = $572,663. 
  • Apply tax at the relevant marginal rate. If you earn more than $180,001 for the year, you pay $54,097 in tax + 45c for each dollar over $180,000 = $230,795 tax payable.

 

CGT always applies on capital assets, regardless of how long you hold them. You’re only entitled to a CGT discount when you hold the asset for more than 12 months. 

 

Finally, ‘disposal’ occurs when you sell, gift  or trade cryptocurrency - even if you don’t receive any money for it. When you swap one cryptocurrency for another, you’re considered to have disposed on one cryptocurrency and acquired a new one, which means that CGT applies. The same is true where you gift someone some cryptocurrency - the ‘market value substitution rule’ applies, and you’ve taken to have received the market value of the asset at the time you gifted it. 

 

If you buy an asset with cryptocurrency that you’ve used for investment purposes, you’ll need to calculate the value of the cryptocurrency according to a reputable exchange and then convert this amount into Australian dollars to report it on your tax return. 

 

Hope that helps! 

7 REPLIES 7
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Devotee

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'sell cryptocurrency to buy a car'... all selling would do, would cement in place the capital gain on the cryptocurreny you disposed of. buying cryptocurrency for personal use items means https://www.projectcoralreef.com/ you have bought cryptocurrency to directly exchange for goods/services and personal use items. 

if the person selling the car accepted bitcoin as a form of payment, then you aren't taxed if that car is worth less than 10 thousand dollars in AUD. is my understanding. and if you bought cryptocurrency, traded it, then ended up disposing of it for a car paid for in cryptocurrency, your trades are still CGT events. and holding for 12months means not trading, but i'm unsure what happens if you shift it from one wallet to another in that 12 months? because the withdrawal fee would mean you didn't hold all of it. anyone?

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ATO Certified

Devotee

Replies 5

Hi @Rocketrod

 

Thanks for your questions! You’ve got this pretty much all worked out, but we wanted to take the time to flesh out some of the detail to help you (and others!) get your tax right. 

 

Before we start, a couple of caveats: 

  1. The following information applies if you’re an investor in cryptocurrencies, rather than a trader. If you’re a trader, you’re considered to be in the business of trading cryptocurrencies, and different rules apply
  2. We’re using your example here, but obviously different scenarios will apply the information here differently. We have a range of tools and guides available, so we encourage you to do your due diligence and make sure you understand how the rules apply to your situation. 

 

You’re correct that cryptocurrency is not a form of money/currency for tax purposes. Under existing legislation, cryptocurrency is considered to be a capital asset, and capital gains tax rules apply on the disposal of these assets. 

 

If you invested $50,000 into cryptocurrency and made $1,000,000 on your investment, the original $50,000 would form part of your cost base. The cost base includes a range of expenses associated with purchasing (or ‘acquiring’) an asset: 

  1. Money paid or property given for the CGT asset
  2. Incidental costs of acquiring the CGT asset or that relate to the CGT event
  3. Costs of owning the CGT asset
  4. Capital costs to increase or preserve the value of your asset or to install or move it
  5. Capital costs of preserving or defending your title or rights to your CGT asset

 

If you’ve paid other capital costs to acquire or own your cryptocurrency, these will also be included into your cost base. 

 

Once you’ve worked out your cost base, you take its value from your capital proceeds (what you make on the disposal of your cryptocurrency) to establish if you’ve made a capital gain or a capital loss. If you’ve made a loss, you’ll also need to work out your reduced cost base.

 

If you make a capital gain, you’ll need to work out if you’re entitled to a CGT discount. If you’ve owned your cryptocurrency for more than 12 months, you can either discount your capital gain by 50% or establish what indexation factor you can apply against your capital gain. You use whichever method provides the best outcome for you. 

 

If you’ve owned your cryptocurrency for less than 12 months, you must use the ‘other’ method, where you simply subtract your cost base from your capital proceeds. 

 

Once you’ve worked out your capital gain or loss: 

  • You either use your capital loss against an existing capital gain, or carry it forward to a future year. If you carry a capital loss forward, you must apply it to your next available capital gain. 
  • You add your capital gain in with the rest of your taxable income, and you pay tax on your total taxable income for the year. The tax will be applied at standard marginal rates

 

Using your example: 

  • If your total cost base was $50,000, you take this away from $1,000,000 for a capital gain of $950,000. 
  • If you held your cryptocurrency for more than 12 months, you apply a CGT discount of 50% = $475,000 net capital gain
  • Add your net capital gain to the rest of your taxable income - let’s say your total taxable income for the year was $97,663 because you had some deductible expenses. $475,000 + $97,663 = $572,663. 
  • Apply tax at the relevant marginal rate. If you earn more than $180,001 for the year, you pay $54,097 in tax + 45c for each dollar over $180,000 = $230,795 tax payable.

 

CGT always applies on capital assets, regardless of how long you hold them. You’re only entitled to a CGT discount when you hold the asset for more than 12 months. 

 

Finally, ‘disposal’ occurs when you sell, gift  or trade cryptocurrency - even if you don’t receive any money for it. When you swap one cryptocurrency for another, you’re considered to have disposed on one cryptocurrency and acquired a new one, which means that CGT applies. The same is true where you gift someone some cryptocurrency - the ‘market value substitution rule’ applies, and you’ve taken to have received the market value of the asset at the time you gifted it. 

 

If you buy an asset with cryptocurrency that you’ve used for investment purposes, you’ll need to calculate the value of the cryptocurrency according to a reputable exchange and then convert this amount into Australian dollars to report it on your tax return. 

 

Hope that helps! 

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Devotee

Replies 3

@AmandaE hey that is very comprehensive thank you. I feel like it would answer most unanswered threads to a point in here. 

I have a query about a couple things but the main one in relation to this is just to clarify... if you withdraw your cryptocurrency from one exchange and send it to another, which would have a 'withdrawal' and 'deposit' record in your accounting... this doesn't interupt your 12months holding as an investor does it? only if you trade it for another cryptocurrency/dispose of it? and based on your details I assume these costs inccured of moving around your investment in that 12 months then get added to your cost base (as specified in your post)?

Actually a second question ... I had the other day and again from re-reading your link. Concerning Danuta in that example; where it stipulates that any costs you used to reduce your cost base and fees that have been used as deductions in a previous financial year are removed from the cost base when sold (as already claimed?). I think that is what it was saying. If you have a capital loss, does this mean fees and costs only work as deductions on profits? If you have an all out capital loss, do fees and additional costs add onto the cost base of that loss? Increasing the capital loss? Or only when being deducted from a capital gain? (I mainly ask because I don't understand how Danuta applies to Crypto I guess).



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Devotee

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*bump* does sending cryptocurrency around break the 12months hodl? 

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Devotee

Replies 1

Hi @treefairy

 

Thanks for following up. The answer to your question on 'sending around cryptocurrency' is 'it depends'. Disposing of a capital asset is the most common CGT event, but as you can see in the appendix to the guide to capital gains tax, there are a range of other situations where CGT applies. 

 

We can't really advise if CGT will apply to your situation without knowing what you mean by 'sending' cryptocurrency. If you're not sure if you need to add extra events in to your CGT calculations, we'd encourage you to contact our early engagement team for more detailed advice. 

 

For your second question regarding deductible expenses and the cost base, there's a simple rule to keep in mind - you can only claim a deduction once. If you've claimed a deduction as part of your income tax return, you can't include it in your cost base. Check out the third element to the cost base paragraph for more information about what you can include. 

 

Thanks!

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Devotee

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Hi ... for the part regarding deductions... a loss must be accounted for by the next gain, and this is the deduction applied to CGT with crypto... what do you mean that if it was used against income it cannot be claimed? How can you figure out a capital loss or gain without having a cost base? Having a cost base... then determines the capital gain or loss. So are you saying that if you have a capital loss, you can't then have a cost base to your new asset? 

I feel like this is confusing crypto rather than clarifying trading accounting, without an example that applies specifically to trading crypto and how to report/account.

The cost base is always the disposal price in my mind, with fees applied... then capital gain is just your running profit or loss statement. I don't get what you mean by 'already claimed deductions' when would this relate to crypto trading? I'm not going to double my capital loss by counting the same event twice obviously.

And when I refer to 'sending cryptocurrency' I just mean sending cryptocurrency to myself, from place A to place B.

If I have a wallet containing 5coins, and I want to send them to an exchange in the event I might sell them, then I withdraw from wallet (event 1 shown in records) and deposit in the exchange (event 2 shown in records of that exchange)... does withdrawing and depositing 5coins to myself, interupt 12months deduction.

Those 5coins from place A to place B have not left my ownership, but they have been dimminished by a withdrawal fee... i'm curious if moving my cryptocurrency around (sending to one's self), interupts the 12 months holding.

Basically I am asking... do apply the 50% deduction on holding assets for 12 months, specifically cryptocurrency, must I hold that cryptocurrency in the same place...  acquired it. Or would the 12 months restart if I moved them?

Because many times coins get delisted from the exchange which you disposed of something to gain them (the new coin and cost base), meaning it is no longer traded on that exchange and support is removed, so users are told to withdraw their coins (send them) elsewhere (often to their own private wallet is the only place if no other exchange is trading it, or to trade on a decentralized exchange)... 

So if I buy my Cryptocurrency in January and am forced to move it (send it to myself) to my wallet in March, does my 12Months for reduced CGT apply to my purchase date in Janurary or the last time I moved it (being March in this case)?

Thanks @AmandaE


Newbie

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That all sounds pretty cruel. If you make a profit they want nearly half, but if you lose bad luck, you cant reduce your income against your loss.

It hardly seems worth the trouble to invest and try to get ahead if youre going to lose a big chunk of it.

With most people struggling to survive, and very few these days being in a position to buy a house, you think the govt would relax the % they take off people if they are prepared to take a risk to get ahead.

Its my hard earned money which I have already payed tax on that im risking (high risk too).

Do the govt just want us to stroll through life and then put our hands out for a pension, so be it.

Sad.