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Crypto & Tax – Yes, your gains are taxable!

It’s estimated there are more than half a million Aussies that have delved into the world of Crypto. This world is pretty new, but the tax laws that apply to the gains & losses it can produce, have been around since 1985! Well before ‘Satoshi Nakamoto’ even dreamed up this crazy world of digital money. Maybe the guys that wrote these tax laws, known as the Capital Gains Tax, knew at the time what was coming & how their law would be applied to trading digital currencies.

Bitcoin and other Cryptocurrencies have been in the news constantly over the past few years. Mainly talking about how much money traders have made and how much you might have missed out on if you didn’t jump on board before it took off. Last year alone, Bitcoin was up over 200%, Ethereum over 600% and there is a tonne of others – way too many to mention.

What quite a few Crypto-trading Australians are unaware of, is that the ATO can see your crypto data. The ATO will assess your Crypto trading based on the Aussie Dollar value of the currency, at the time of buying or selling. If your transactions are back to USD, this will need to be converted to AUD on the date of the transaction. This can be quite time-consuming if you’re doing a lot of trading.

Let’s jump into a few frequently asked questions we get on Crypto….

I have a Crypto account and I’m sitting on a big gain, do I have to pay any tax yet?

If you haven’t sold the Cryptocurrency (realised your gain), then no, you have no tax to pay tax yet.

There is a catch here though – depending on what coin you’re using to buy and sell crypto, (Bitcoin or Altcoins), these coins may be trading your cryptocurrency on your behalf. Check the terms & conditions.

I bought some Crypto ages ago and I’ve just sold it, do I have to pay tax?

Yes! You will need to declare this as a capital gain come tax time. In good news, if you have held it in your own name for over 12 months the gain will be discounted by 50% so you will only pay tax on half of it.

I’ve bought and sold Cryptocurrency a lot in the last 12 months, how do I declare this?

Your Crypto information needs to be added into step 2 of your lodgement; Income. Depending on your plans for trading Crypto, you will fit into 1 of 2 categories.

  1. Trader – taxed as ‘trading income’ and entered into the Personal Services section.
  2. Capital Gains – taxed as a lot of capital gains tax transactions, to be entered into the Capital Gains Tax section.

Either way, if you haven’t held the Crypto for over 12 months, the tax result will be the same.

If this doesn’t quite make sense, or you’re not sure what category you fall into, don’t forget, our Numbers Geeks are just a phone call or the click of a button away!

I bought Crypto but sold it for less than what I paid, how does this impact my tax?

You have made what is called a ‘capital loss’. A capital loss doesn’t reduce your normal taxable income, it just offsets your capital gains – so you’ll have to make a capital gain to receive any tax benefit from this.

To understand more about capital gains, check out our Capital Gain blog

How does the ATO know about your Crypto?

The ATO has a data matching program which has been in place for years. This expanded out to Cryptocurrency in 2019. This program receives information from your Crypto wallet including your name, bank details, address and trading information including what you’re buying & selling in Cryptocurrency.

“…we closely track where it interacts with the real world through data from banks, financial institutions and Cryptocurrency online exchanges to follow the money back to the taxpayer,” warns Tim Loh, ATO’s assistant commissioner.

The ATO are now contacting crypto-trading Aussies who have left their crypto activity off of their Tax Returns.

Need to amend your Tax Return?

If you’ve already lodged your Tax Return but forgot to include your Crypto or didn’t even know you needed to, it’s not too late! It’s easy to add in your gains of losses, and it’s a good idea to do it before the ATO calls.

When amending your online Tax Return, the Numbers Geeks at One Click Life are always on standby to help. So feel free to call on 1300 707 117 or message through your tax return to chat about it.