Cryptocurrencies like Bitcoin and Ethereum is constantly rising. More number of Aussies are
investing in cryptocurrencies with every passing year. But this has made the taxation a bit
complex.

If you too are a crypto investor and want to know how your investments can be taxed, you’ve
landed at the right page. In this blog, we will explain you how taxation applies to your crypto
investments and what you can do to minimise its impact on your tax.

So let’s get started.

What Are Crypto Assets?

Crypto assets are digital or virtual currencies that use cryptography for security. As per ATO
regulations, all cryptocurrencies are treated as properties. Any cryptocurrency you hold is a
crypto asset in the eyes of ATO. So, gaining your make via selling your cryptos attracts a
Capital Gain Tax or CGT. So, when you sell, trade, or exchange crypto assets, it triggers a
CGT event.

Capital Gains Tax (CGT) on Crypto Assets

When Does CGT Apply?

Whenever you dispose of a crypto asset, it triggers a CGT event. When we say “dispose”, it
means you are either selling it for fiat currency, echanging it with any other cryptocurrency or
even if you are using it to purchase any goods or service.

If the proceeds from such disposal exceed the cost base (the amount you paid for the asset
plus any costs like transaction fees), you incur a capital gain. Similarly, if your proceeds after
disposing of your cryptocurrency are less than the cost base, you incur a capital loss.

How to Calculate CGT

To calculate your CGT, you’ll hhave to find out the differnnce between the capital proceeds
you made while disposing the asset and the cost base. As per the ATO regulations, you’ll
have to convert all your crypto assets into Aussie Dollars via a reliable institution like the
Reserve Bank of Australia.

CGT Discount

Let’s say you hold your crypto for 12 months or more. In this case, you can get up to a 50%
discount on any capital gain. In short, you can reduce your tax liability by simply staying
invested for a longer period.

Record-Keeping Requirements

Accurate record-keeping is essential for compliance with the ATO’s guidelines. You must
keep records for each crypto asset transaction, including:

• The date of the transaction
• The value of the crypto asset in Australian dollars at the time of the transaction
• What the transaction was for (e.g., sale, exchange, purchase of goods or services)
• Any associated transaction fees or costs

These records must be kept for at least five years after the disposal of the crypto asset.

Personal Use Assets

In some cases, crypto assets can be classified as personal use assets and may be exempt from
CGT. Personal use assets are crypto assets kept or used mainly to purchase items for personal
use or consumption. However, this is rare. For most investors, crypto assets are considered
investments and are subject to CGT.

For instance, if you buy crypto to use it regularly to purchase personal items, and the crypto
is not held for investment purposes, it may be classified as a personal use asset. However, if
you hold crypto assets with the intention of making a profit from their increase in value, they
are not considered personal use assets.

Income Tax on Crypto Transactions

If you receive cryptocurrency as payment for goods or services, the value of the
cryptocurrency in Australian dollars at the time of receipt is considered ordinary income. This
income must be reported in your tax return, just like any other form of income.

Businesses and sole traders that accept cryptocurrency as payment for goods or services must
also report these transactions as income. The value of the cryptocurrency at the time of the
transaction must be converted to Australian dollars and included in your business’s assessable
income.

ATO Compliance and Data Matching

The ATO uses sophisticated data-matching techniques to ensure compliance. This involves
cross-referencing data from banks, financial institutions, and crypto exchanges with
individual tax returns. The ATO can track where cryptocurrencies interact with the real
world. This ensures that all transactions are reported correctly.

The ATO has also issued warnings to taxpayers who believe that the anonymity of
cryptocurrencies allows them to evade their tax obligations. The ATO has a specialised datamatching program. This program helps it identify individuals who are not reporting their
cryptocurrency transactions accurately.

Examples of CGT Calculations

The best way to understand the impact of crypto investments on your tax liabilities is with a
couple of examples. So let’s take a look.

Example 1: Tim buys 400 XRP for A$800 and incurs a brokerage fee of A$5. A few days
later, he exchanged his 400 XRP for 2 ETH. At the time of the exchange, the market value of
2 ETH is A$900. Tim’s cost base is A$805 (A$800 + A$5). His capital proceeds are A$900,
resulting in a capital gain of A$95.

Example 2: Rose buys crypto with the intention of selling it at a higher value. She sells her
crypto when the market value increases, incurring a capital gain. This gain is subject to CGT
and must be reported in her tax return.

How CROWNGLOBE can help?

Cryptocurrencies are bit complex products. They are not your standard properties where tax
calculation is easy. Moreover, the rules and regulations around crypto assets are constantly
evolving. ATO and the Australian Government are constantly taking steps to ensure
cryptocurrencies do not put Australian citizens at financial risk. We agree that
cryptocurrencies could be a good investment option, but one must approach it with care. The
best option is to consult with experts like Nanak Accountants & Associates.

Here, we have a team of experts that specialises in managing complex crypto taxations and
regulations. We will ensure that you stay fully compliant with ATO guidelines and get the
maximum tax benefit.

Final Thoughts

We hope this guide will offer you much-needed insights into crypto taxation. Remember, no
matter where you invest, it’s important to stay compliant with ATO guidelines. By doing so,
you can always stay out of ATO’s radar and enjoy your gains! So why risk getting flagged by
ATO? Our experts at Nanak Accountants & Associates can ensure you stay compliant with crypto
regulations and save maximum on your tax payables. For any further information, feel free to
reach out. Our experts are here to help.

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