As the cryptocurrency market continues to thrive, the Australian government has begun focusing on regulating and taxing cryptocurrencies. Understanding how to calculate and report capital gains tax on cryptocurrency is crucial for investors and traders. This article aims to provide insights into how to calculate and report capital gains tax on cryptocurrency in Australia, helping readers clarify their tax obligations.
Determining Your Crypto Status: Investor or Trader?
Investor: If your primary goal in buying and selling crypto is to generate profits, you are likely classified as an investor, which subjects your crypto activities to Capital Gains Tax (CGT).
Trader: If you’re mining and selling crypto, or buying and selling crypto in an organised, “business-like” manner, usually holding only for a short time, you’re likely running a business. You’ll need to treat your earnings as business income. This means you’ll need to report your income to us and pay tax on it.
How crypto is taxed?
Most crypto activities are taxable, either under CGT or as assessable income. Digital wallets can contain different types of crypto and, each one is a separate CGT asset. You need to report CGT events on your tax return, whenever they occur.
If you’re an investor and dispose crypto, this is treated as a CGT event. It includes when you:
sell, donate or gift crypto.
trade, swap or exchange crypto (including trading one crypto for another).
convert crypto into regular (fiat) currency, for example, into Australian dollars.
use crypto to purchase goods or services.
If you’re a trader running a business, income tax applies when you:
earn crypto through staking, yield farming and airdrops.
get paid in crypto.
dispose of crypto as part of a business activity.
If you receive staking rewards and airdrops, remember:
to declare these crypto assets as income.
a CGT event may occur when you dispose of these rewards.
How do I calculate CGT?
You can use this equation to work out your capital gain or loss:
Your sale price – your cost base = your capital gain or loss.
If you make a capital gain:
Report your total capital gains for the year in the 'Total current year capital gains' section (18H) on your tax return.
If you held the crypto for more than 12 months, you may qualify for a 50% discount on the capital gain.
For crypto owned less than 12 months, subtract the cost base from the sale price.
Report the resulting amount as 'Net capital gains' (18A). It is added to your total assessable income and taxed at your income tax rate.
If you make a capital loss:
Use your capital loss to reduce an existing capital gain or carry it forward to a future year.
To report a net capital loss, enter ‘0’ at the 18A ‘Net capital gains’ label.
Enter your total capital loss at the 18V ‘Net capital losses carried forward to later income years’ label.
You can only claim a loss for crypto that you’ve disposed of. You can’t claim a ‘paper loss’ when the value of your crypto has gone down but you still hold it.
Capital gains tax record keeping tool: Capital gains tax record keeping tool | Australian Taxation Office (ato.gov.au)
Q & A:
1. In the ever-changing world of crypto, what records should I maintain?
Everybody doing any kind of crypto transaction, needs to keep a record of the following:
the date of the transaction.
the value of the transaction in Australian dollars (you can get this from a reputable online exchange).
what the transaction was for.
who the other party was (or their crypto address).
2. How to record crypto value on tax return?
Report the value of crypto in Australian dollars, using the exchange rate from a reputable exchange on the transaction date. Keep records of the rate source for possible future verification.
3. Does temporary resident have to declare crypto？
Temporary residents are not required to declare crypto for CGT in Australia. However, income related to investments, including crypto staking rewards, airdrops, and dividends, should still be reported.