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Re: Taxing crypto not linked to AUD

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Dynamo

Views 1556

Replies 3

Hi all,

 

I'm most confused about how cryto-to-crypto trades can be taxed. Up until recently, I thought I'd be taxed on what money I "cash out" into fiat. I thought this because crypto markets are up and down like a yo-yo, and to me it doesn't make any sense to tax in such an erratic environment. There's also no way of really being able to assess what the market value in AUD is worth with any accuracy.

 

In this example from the ATO: "Example: exchanging a cryptocurrency for another cryptocurrency

Katrina exchanges one coin of Cryptocurrency A for five coins of a Cryptocurrency B. The market value in Australian dollars for both the one coin of Cryptocurrency A and the five coins of Cryptocurrency B is $5,000."

 

How can you arrive at a market value in AUD when you're exchanging one crypto currency for another on a foreign exchange not in any way linked to AUD? What cryptocurrency sells for in Australia (or from exchange to exchange) is vastly different.

 

"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."

How can taxpayers be expected to work out how to pay tax when the ATO is still seeking answers about how to tax it?

 

"One way of determining the value in Australian dollars is the fair market value which can be obtained from a reputable cryptocurrency exchange."

There's no liquidity on Australian exchanges. I think a majority trade overseas where there is no AUD market value.

 

"One example of cryptocurrency is Bitcoin. Our view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is an asset for capital gains tax (CGT) purposes"

 

Seeing as you're trading one asset for another, what happens if you have many assets that individually have a value under $10,000. For example, what if you've bought $5000 Ethereum, $5000 Bitcoin, $5000 Ripple and $5000 Monero over the space of a year, and not all at once. How does that fit in with "Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes".

Is one taxed on that occasion (if they say sell for $10000 each)? If they're all linked together as one asset, how can they be taxed individually? Would that mean that if you purchase 5000 in Gold, 5000 in Bitcoin and 5000 in shares you can be taxed on the gains from such (because you've invested 15000?)

 

 

"the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)"

This is taken from the ATO guide under "record keeping". I guess this is one of my main issues as mentioned above. Many people are trading overseas. Records are almost at the point of being computer jargon. The average person isn't going to be able to work out their tax obligations, and nor is the average accountant. Wouldn't it make more sense to tax people when they cash out into AUD? You know, money in, money out? Otherwise you're trying to work out what X was worth at some random time, and what the other X was worth at that time, on a foreign exchange where they both vary greatly in value from minute to minute, and have no relevance to value in AUD.

3 REPLIES 3
Highlighted

Devotee

Replies 2

I think there are many people that share your thoughts here.    The answer as to how you arrive at an AUD value of your XYZ coin when there is no AUD market on any exchange for it is to first obtain it's equivalent value in BTC (or ETH as many exchanges have trade pairs against ETH now), and then use that BTC value to obtain the equivalent AUD value.  But even this approach is not really accurate as it doesn't account for the trade fees or even liquidity issues that might be faced in actaully converting the XYZ coin back into AUD.  

 

Liquidity (or lack of) plays the biggest role here, and for me is the number 1 reason that the ATO should not be considering crypto to crypto as a taxable event.  If you start with $1000 of BTC and buy ABC coin with it, and then later if it has gone up in price 10x trade that for $10,000 of XYZ coin (the dollar amount being determined by you trade price in ABC/BTC or XYZ/BTC and then converted to AUD) , on paper your sell price of the ABC was $10,000.  However if liquidity of the ABC market was low enough, it is simply not fair to say that your holding was worth $10,000 because there might be no way to sell it for anywhere near that amount.   The ATO talks of "fair market value", but this can be extremely hard or even impossible to work out with crypto currencies.  It's not like tangible assests where "the market" would give a single asset a price tag, it's not like Fiat currency trading because those markets have immense liquidity, and it's equally not like share trading because those are always priced directly in AUD (or indirectly in foreign exchanges but always against fiat currencies which are high liquidity).   

 

In regards to your question about the $10k limit, this refers to the purchase (cost) price of the coins when you bought them, regardless of the value when you sell/use them, and is only for personal use.  The personal use bit is key, as you need to be buying them for the sole purpose of using them to purchase a good/service with them, not for investing or trading.  I would say that vast majority of people who own crypto to not meet the personal use test.  It certainly sounds like you do not.  That said, the personal use part is very very grey.  If you bought $1000 BTC several years ago because it was the "new internet money" and you expected to be able to buy things with it, and now it's worth 100's or 1000's of times more and you just haven't gotten around to spending it all, are the ATO still ok with that not being taxed when you spend it?  And what if you decide to sell it back to AUD? Would that fall under the CGT exemption too, since you bought it for personal use and it cost under $10,000?  If you bought a boat or any other personal use tangible asset for under $10,000, kept it for 5 years, found it was suddenly worth $100,000 and then sold it you would NOT be taxed CGT.  

 

On your points about record keeping, I agree entirely.  Many exchanges do not provide a trade history other than the most recent few, and some (even reputable Australian exchanges such as CoinJar) do not provide any transaction history at all.   What makes it worse is that the lack of automated record keeping completely prohibits frequent trades.  I know many people who make hundreds or thousands of trades a week.  It would simply take too long to calcualte and record the AUD value of each of those trades, especailly if there is no AUD trade pair on any exchange and you have to work out the value via other currencies.  And we're not even getting into trade bots, which are very popular nowdays and can make thousands of trades a day no your behalf.

 

Lastly, a point that I will be making to the ATO in their feedback portal, given the huge spike in popularity of crypto in the last year, and given that these clarifications are only being made now towards the end of the finaincial year, will the ATO make any relief for investors/traders who have not been record keeping until now?   

 

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Dynamo

Replies 1

Thanks for your reply! It's refreshing to know someone else understands what I'm talking about! I'd love to talk further via email, but I don't think that's a possibility here.

 

The problem with crypto to crypto trading is that it's not profit until it's into fiat (and volatility is unprecedented). Most people that got into crypto in the last 6 months are now being reminded of this.They may not only have lost all their money, but now they have to pay tax on profits that never materialised in the real world. It seems like the typical response to this situation is "good, that'll teach them". People are being taxed in an environment where there is no stability at all, and no link to AUD. To get it into AUD is often a complicated, time consuming and costly process. The whole market swings according to the success or failure of BTC, so as much as you're trading between different crypto, in many ways it's all the same. 


On forums you just see people pretty much saying "good luck taxing me", and this avoidance.. then there's others that are struggling to comprehend how they're going to be able to work out their true tax obligation. Then there's others (I think most) that think you're only taxed when you sell into fiat.

 

My reasons for getting into crypto relate to wishing to avoid the banks and fiat currency. I read The Creature from Jekyll Island and after realising I'm actually losing money keeping it in the bank (inflation), and that I can be locked out of access to my money like in Greece, got it out. My reason for getting into crypto differs from most. Most are just trying to make a quick buck. I sincerely have no faith in keynesian economics, and this heavily indebted economic system (australian private debt to gdp is a joke (interest rates are going up), but globally, I think fiat is in trouble). I figured that most of the money I have in crypto can be kept for when I go overseas, being a better and faster method of transfer without all the usual complications involved with banks. 

 

If the ATO wants revenue, they need to make it simple. When you sell back into fiat, pay your tax based on what you've actually made. This would be progressive, and the community would embrace it.

 

 

 

Highlighted

Devotee

Replies 0

Can you give us an exact example of a specific trade you would not be able to value. Include how you would buy and sell
It (what Trading firm you would use etc).

Then perhaps we can look at how we might do it.