Cryptocurrency and your tax

It’s pretty safe to say we all know someone who claims to be the cryptocurrency expert, with an inside word on the next big trade and the coin that is going to the moon. They may know how to pick the next big thing, but do they know what to do with all those gains when it comes to tax time?

Do I need to pay tax on any Crypto gains/profit?

What many people fail to recognise are the tax consequences that arise with the buying & selling of crypto currencies. 

How is it taxed?

In the eyes of the ATO for most individuals, Cryptocurrencies are treated the same way as if you hold or trade shares on the stock market. From a tax perspective any gain on a trade will be subject to Capital Gains tax. What this means, is that any gain made is added to your taxable income and then taxed at your marginal rate. 

If you are in the business of trading cryptocurrencies, the way you report your gains and losses will be different. Instead of reporting your gains on a capital basis, you are required to recognise your cryptocurrency as trading stock. What this means is that all your sales & purchases get pooled and the profit or loss is reported. 

What about other sources of Cryptocurrency income?

Just as you would be required to pay tax on dividends from shares, stake pool income also constitutes taxable income. Any staking rewards received, as well as proceeds from airdrops, are added to your taxable income and subsequently taxed at the marginal rate. 

If I’ve made a loss what happens?

For most individuals, if you have made a loss this loss will be offset against any gains that you have made. If you have not made any gains, then this loss will be carried forward indefinitely until a gain has occurred in future years. 

Once again, this varies if you are operating a business trading cryptocurrency. Depending on how your business is structured (Company, Trust, Sole Trader etc), will be key in determining how your loss is treated for tax purposes. This can get quite complicated due to the tax rules surrounding the possible different structures, so it is important that you seek advice relevant to your situation. 

I haven’t converted any of my Crypto back to AUD, do I still need to pay tax?

In short, the answer to this is yes. No matter what currency you are trading, as long as any of your disposal or sale of your crypto is made, you will be required to report this on your tax return in Australian Dollars (AUD). 

What records do you need to keep?

Having a good record keeping system is essential to accurately determine your tax obligations. We recommend ensuring you keep accurate records of the date of transactions, number of units purchased/sold, and the price these units were purchased/sold. You should be able to obtain all these details from the transaction reports supplied by your exchange. 

Mulcahy & Co can assist you with all taxation including calculating your tax liability and future tax minimisation strategies. If you are interested, contact one of our offices today. 

Watch the guys discuss all the ins and outs of tax when it comes to cryptocurrency investments.

Episode 32

Cryptocurrency and your Tax payable. Our special Accounting team of Luke, Daniel and Harry discuss with host Gavin Nash. Key topics are discussed in detail to assist you with your Crypto Investing.

Available on Apple, Spotify or right here!