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I have a few questions about crypto currencies and tax

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This is from the ATO website:
Tax treatment of crypto-currencies in Australia – specifically bitcoin
“Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.”

How does this work?
Is the 10,000 at the time of acquisition or at the time of disposal (if so is the 10, reset every year?)
Is the 10,000 limit for each type of crypto currency (e.g. Bitcoin, Litecoin, Dash, etc.) or for assets as a whole?

What are the tax implications of the hypothetical example below that will help me understand?
Example:
2012 -2013 (value $100~ per coin)
I mined 3 Bitcoin as a hobby out of interest in the new technology

 

2014-2016
Bitcoin says stored in Paper offline wallet

 

2017 (value $10,000 per coin)
Event A: I sell 0.2 Bitcoin for $2000 dollars
Event B: I pay a bill with 0.1 Bitcoin for $1,000
Event C: I trade 0.05 of a bitcoin for $500 worth of another crypto currency.

I have a good understanding of tax, capital gain and holding shares. However, I find crypto currencies tax treatment very confusing and the tax advice from the ATO is helpful but very limited. I am worried that an accountant will not know due to the new nature of this technology.

 

Thanks for any help in advance

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Hi @Confused101,

 

Welcome to our Community!

 

Let’s start with the principle that Bit-coin is considered to be a CGT asset; any gain from disposal of bitcoin will be subject to capital gains legislation.


However, gains from disposal of personal use assets are disregarded. Personal use assets are CGT assets, other than collectables, used or kept mainly for the personal use or enjoyment of you or your associates. Any personal use asset you acquired for less than $10,000 is disregarded for CGT purposes. If you did mine a small amount of Bitcoin as part of a hobby then your cost is generally only the actual costs incurred by you. 


For those bitcoin that are just used for personal consumption such as paying a domestic bill then there would be no tax implications.


However, in contrast, if your bitcoin activities were undertaken as part of profit making activities or your occupation included dealing in such kinds of assets, or other similar forms of profit focused activities, then disposals of Bitcoin would be subject to tax as ordinary income, irrespective of any CGT exemption.  This is because if gains are taxed as ordinary income then any CGT exemptions cannot apply to ordinary income taxation.


For example,


For Events A and B, where the mined Bitcoin were acquired as part of a hobby and then just sold or used to pay private expenses then these situations involve disposals of personal use assets disregarded under CGT rules. However, if the Bitcoin mining was undertaken as part of a new form of business activity or profit making strategy then the Bitcoin may have been acquired as part of profit making or business activities and any profit on disposal taxed as ordinary income. 


For Event C, if the Bitcoin was just traded for a more stable form of investment then the bitcoin trade would be treated as a disposal of a personal use asset under CGT rules. However, if this was done with the intention to be part of profit making or trading activities that you ordinarily undertake then any gains or losses would be taxable or deductible irrespective of capital gains tax treatment.

 

Thanks.

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Best answer

ATO Certified

Community Support

Replies 0

Hi @Confused101,

 

Welcome to our Community!

 

Let’s start with the principle that Bit-coin is considered to be a CGT asset; any gain from disposal of bitcoin will be subject to capital gains legislation.


However, gains from disposal of personal use assets are disregarded. Personal use assets are CGT assets, other than collectables, used or kept mainly for the personal use or enjoyment of you or your associates. Any personal use asset you acquired for less than $10,000 is disregarded for CGT purposes. If you did mine a small amount of Bitcoin as part of a hobby then your cost is generally only the actual costs incurred by you. 


For those bitcoin that are just used for personal consumption such as paying a domestic bill then there would be no tax implications.


However, in contrast, if your bitcoin activities were undertaken as part of profit making activities or your occupation included dealing in such kinds of assets, or other similar forms of profit focused activities, then disposals of Bitcoin would be subject to tax as ordinary income, irrespective of any CGT exemption.  This is because if gains are taxed as ordinary income then any CGT exemptions cannot apply to ordinary income taxation.


For example,


For Events A and B, where the mined Bitcoin were acquired as part of a hobby and then just sold or used to pay private expenses then these situations involve disposals of personal use assets disregarded under CGT rules. However, if the Bitcoin mining was undertaken as part of a new form of business activity or profit making strategy then the Bitcoin may have been acquired as part of profit making or business activities and any profit on disposal taxed as ordinary income. 


For Event C, if the Bitcoin was just traded for a more stable form of investment then the bitcoin trade would be treated as a disposal of a personal use asset under CGT rules. However, if this was done with the intention to be part of profit making or trading activities that you ordinarily undertake then any gains or losses would be taxable or deductible irrespective of capital gains tax treatment.

 

Thanks.

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