What you need to consider with crypto and tax
With the rising interest in Cryptocurrency (crypto) by the general population, there are a few things that need to be addressed. It must be noted that this increased interest is shared by the Australian Taxation Office (ATO). How you are taxed depends entirely on how you invest in crypto, what kind of earnings you’ve made, and what you’ve done with said earnings. This article details a few things to consider when declaring your crypto gains/losses for the financial year.
Personal use asset exemption
For the crypto hobbyist, there is a $10,000 ‘Personal Use Asset tax exemption. This is tough to determine, as it is not as black and white as it sounds. If a hobbyist (explained further below) purchased under $10,000 worth of crypto and which has been used for personal use or for purchasing goods, then it is probable that no tax is payable. It is an incredibly grey area, with little precedent available to give clear boundaries around personal use.
Trader vs investor vs hobbyist?
With crypto, our classified as either a ‘trader’, ‘investor’, or ‘hobbyist’. Your classification has a huge impact on how you are taxed.
Trader: Crypto investors tend to buy and sell quite frequently which may deem them to be in the business of trading crypto, which is exactly what being a trader is. The definition of trading frequently is not easy to determine. The ATO will implement more rules surrounding this definition in the coming years. This means that the income forms part of your normal income and losses can be offset against other components of your personal income (assuming a few rules are met.)
Investor: If you are not in the business of trading crypto, such as you have a few parcels you may buy and sell every couple of months, you may be eligible for the 50% discount (which you can obtain if you hold the asset for over 12 months).
Hobbyist: The hobbyist is someone with more of a lackadaisical approach to crypto, maybe having one parcel of shares under $10,000. As mentioned above, this may lead to your gains being tax free when disposing of your coins.
Record Keeping
Anyone dealing with crypto needs to keep the following records:
- The date of each transaction
- The amount in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
- Details of the transaction,
- Any associated expenses, like fees and commissions
- Details of the other party
If you’re still learning about how to properly approach your cryptocurrency come tax time, it’s worth having a read through the resources on the ATO website. If you would like a second opinion on your investor status, contact Link Advisors and we can provide you with our thoughts.