If I start mining crypto and don’t cash out before 30 June, how do I declare the Bitcoin and at what value in my tax return? Can I offset equipment and electricity costs? How much tax would I pay?
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.
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.