Cryptocurrencies, including Bitcoin, Ethereum and Cardano, just to name a few, have been the top retail investment trend of recent years. And this boom has opened the door to substantial gains (and losses) for investors over short periods of time.
However, a surprising number of people are actually unaware of their tax obligations surrounding crypto trading and as a result of not understanding the tax laws surrounding this relatively new enterprise, many people have failed to declare their cryptocurrency trading activities correctly.
Many people believe that cryptocurrency gains are tax free or only taxable once cashed in. This is simply not true. Many others believe that due to the anonymous nature of cryptocurrency trading, their movements are not traceable, but in fact, the ATO have access to more data and the ability to track those investing very closely.
If you buy cryptocurrency as an investment, Capital Gains Tax (CGT) will apply.
This is calculated based on the difference between the amount you paid for the cryptocurrency and the amount you disposed of it for. Any profit is subject to CGT, but this can potentially be discounted by 50% if you hold your cryptocurrency for more than 12 months.
Disposal occurs when:
a. Selling cryptocurrency for Australian dollars
b. Exchanging one cryptocurrency for another
c. Gifting cryptocurrency
d. Trading cryptocurrency
e. Using cryptocurrency to pay for goods or services
In some cases (such as when you gift it), market value is substituted for proceeds.
Sell or swap: does this give rise to a tax charge?
Whether you sell cryptocurrency for Australian dollars or exchange one form of cryptocurrency for another, the tax treatment is the same: You will always be liable for CGT and will need to record any gain on your tax return.
The gain is basically the sale proceeds (substituted for market value for some transactions) less the cost.
Be proactive and get in touch
Get in touch with us today to discuss your crypto trading tax obligations and how to correctly declare and minimize your tax, so that you can confidently invest and make significant profits for your future.