Cryptocurrency is a speculative asset, prone to market fluctuations and public opinion. Using it for investment purposes is not without risk, and those who choose to do so must also consider the tax implications of their investment.
Whether you have made a profit or a loss with your crypto, it must be reported. The tax treatment of your cryptocurrency will differ depending on how you have used the asset, and even how you reported it previously.
A crypto asset is a personal use asset if you keep or use it mainly for personal use. The most common situation of personal use of crypto assets is to buy items for personal use or consumption.
A capital gain on the disposal of a crypto asset is disregarded if both:
- it is a personal use asset
- you acquire it for less than $10,000.
A capital gain on a personal use asset is not disregarded if it cost you more than $10,000 to acquire the asset. You disregard all capital losses you make on personal use assets, including crypto assets, for CGT purposes.
An investor of cryptocurrency is someone who has purchased it with the intention of it becoming an investment.
Any cryptocurrency events need to be reported on your taxable income. This is because cryptocurrency is generally classified as a CGT asset.
For example, if you acquire a crypto asset as an investment, transactions such as disposal or exchange, or swap are a CGT event, and you may make a:
- capital gain
- capital loss, which can reduce the capital gains you make.
If you hold the crypto asset as an investment, it will not be exempt from CGT as a personal use asset.
Before you calculate CGT on your crypto assets, you will need to:
- check you have records for your crypto assets and crypto transactions
- convert the value of the crypto assets into Australian dollars.
You need to keep details for each crypto asset as they are separate CGT assets.
If you are buying or selling cryptocurrency regularly, this will be considered taxable income as you are considered to be receiving an income from this process. Any capital losses or gains need to be reported as income or losses.
Businesses that are transacting in crypto assets may need to account for them as trading stock or ordinary income (that is, on the revenue account rather than as investment capital gains or losses). In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income or a deductible expense depending on the nature of the transaction.
The complex tax treatment that cryptocurrency receives means that it can become a complicated and confusing item on your tax return. To ensure you are compliant and correctly classifying your usage, speak with a professional adviser today.