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Guide to Cryptocurrency Tax in Australia
Updated June 8, 2020
In this guide, you will learn everything you need to know about bitcoin and cryptocurrency taxation in Australia. We cover how to calculate your taxes, how to minimize your capital gains, and what is required to be reported by the Australian Tax Office. You will also learn how to generate and file your crypto tax reports.
Coinpanda is provided for informational purposes only. We do not guarantee that our understanding of the cryptocurrency tax rules detailed below is in fact correct, or up to date according to the latest regulations. This service is not intended to substitute for tax, audit, accounting, investment, financial, nor legal advice. Please see our full disclaimer.
1. Crypto taxation in Australia
With cryptocurrencies such as bitcoin becoming more popular and used by an increasing number of people, many Australians are now wondering about the possible tax implications it may have. Tax rules can be difficult to fully understand, and especially with regards to cryptocurrencies which is a very new phenomenon.
Luckily, the Australian Tax Office (ATO) has issued guidance to the taxation of bitcoin and other cryptocurrencies to help people in Australia file and report their taxes according to the law. This tax guide breaks down all the difficult jargon to simpler terms so that you will gain a better overview of the current tax implications.
In Australia, capital gains are taxed at the same rate as the marginal income tax rate. Refer to this page for the latest applicable income tax rates.
Essentially, each disposal of a cryptocurrency asset can trigger a taxable event. This means you will need to calculate capital gains tax (CGT) each time you sell, trade, or pay for goods or services with a cryptocurrency. In Section 3 we will look closer at each type of disposal together with practical examples.
2. How to calculate capital gains
A capital gain occurs when you sell a cryptocurrency for more than the original purchase price. On the other hand, if the sales price is lower than the purchase price, it is considered a capital loss. All values used to determine a capital gain or loss must be in Australian dollars at the time when the transaction happened.
If you for some reason cannot establish the original purchase price, the safest option is to consider the value to be zero. If you have received cryptocurrency from mining, staking, or airdrops, you should use the fair market value in AUD at the time of receipt as your initial purchase price.
The Australian Tax Office has not published official recommendations for which accounting method to use for calculating capital gains. Taxpayers are free to choose between FIFO (First in First Out) and LIFO (Last in First Out), similarly to many other countries. The former accounting method, FIFO, is in general recommended by most tax accountants today.
Most cryptocurrency tax software like Coinpanda supports both FIFO and LIFO cost basis methods, and calculates your capital gains for cryptocurrencies automatically.
3. Buying, Selling & Trading
Not all transactions with cryptocurrencies are taxed in Australia. This Section breaks down the current tax rules for different transaction types.
Buying cryptocurrency (Ex: AUD → BTC)
You are not taxed when buying cryptocurrencies with Australian dollar or other fiat currency (as long as you own what you bought). This is similar to almost all countries today.
Note that it’s important to keep track of all your purchases and complete transaction history so that you can calculate your cost basis and deduct the costs if you decide to sell the crypto later.
Selling cryptocurrency (Ex: LTC → AUD)
Selling cryptocurrency is considered to be a disposal by the ATO and is therefore a capital gains tax (CGT) event. If you have done so, you will need to work out the capital gains for each transaction. The ATO states clearly that each individual cryptocurrency is a separate CGT asset and should be valued separately. This means you need to calculate capital gains for bitcoin, ethereum, litecoin, etc separately.
Exchanging cryptocurrency (Ex: BTC → ETH)
The guidance issued by the ATO states clearly that exchanging (or trading) one cryptocurrency for another, is similar to disposing one CGT asset and acquiring another CGT asset.
Further, the guidance states that the sales proceeds should be accounted for in Australian dollars by looking up the fair market value of the cryptocurrency received. If you cannot value the crypto received at the time of the transaction, you can find the market value (in AUD) of the cryptocurrency sold instead.
Transactions with stablecoins (Ex: XRP → USDT)
Stablecoins such as Tether (USDT), TrueUSD (TUSD), and Paxos (PAX) are treated similarly to any other cryptocurrency by the ATO. Hence, all transactions with stablecoins are taxed in a similar fashion to trade transactions as explained above.
– Selling cryptocurrency
Callum bought 8 ETH (ethereum) for $800 in 2017. One year later he buys 2 ETH for $450. Now, Callum owns a total of 10 ETH which he has paid a total of $1,250 for.
In January of 2020, Callum decides to sell his entire investment. He sells 10 ETH and receives $2,400 in exchange. His transactions can be seen in the below table:
|Type||Date||Amount||Price||Cost Basis||Capital Gains|
To calculate his capital gains, Callum needs to find the total cost basis for the 10 ETH he has sold. This is simply the total initial cost ($1,250) since he is now selling his entire investment. The total capital gain is then found as $2,400 – $1,250 = $1,150.
|Type||Date||Amount||Price||Cost Basis||Capital Gains|
Now that Callum has worked out his capital gains, he simply needs to report this value on the annual tax return so that he will be taxed as per his marginal income tax rate.
4. Margin & Futures Trading
Margin trading has become very popular in the last few years, and many crypto exchanges offer this like BitMEX, FTX, and Bybit for example. Instead of buying or selling cryptocurrency you actually own, margin trading lets you borrow funds from the exchange to speculate if the price will go up or down in the future. The former is often referred to as going long, while the latter is going short. Futures and derivates trading works in a similar fashion, ie. you borrow funds when you make a purchase or sell order.
When you trade futures on an exchange like BitMEX, you will open a position each time you make a buy or sell order. When the position is closed, you will have made either a gain or loss.
The Australian Tax Office has not yet issued specific tax guidance for the treatment of margin trading. A safe approach is to include the gains or losses in your total capital gains calculations. A crypto tax solution calculates your capital gains for margin trading automatically so you don’t have to do this manually.
5. Taxable income from Mining & Staking
Mining of cryptocurrency
Cryptocurrency received as payment for mining is subject to tax treatment in almost all countries, with Australia being no exception. How much you will pay in taxes depends on whether your mining activity is classified as a business or just a hobby. Refer to this site to better understand if you are in business or if your activity is simply classified as a hobby by the ATO.
If you are mining cryptocurrency as a hobby, you will need to pay capital gains tax when you dispose of the received cryptocurrency later. Since you did not pay anything when acquiring the assets, you should use a cost basis equal to zero. You are not allowed to make any deductions from associated costs.
However, if you are mining as a business, any income received would be included in your assessable income. You can use relevant market rates from reputable exchanges to determine the value in Australian dollars. You are allowed to deduct certain expenses that are directly related, eg. electricity costs.
Cryptocurrency received from mining is treated as trading stock. When you are in a business, the assessable income is both proceeds from the disposal of trading stock, but also an increase in the total of your trading stock value at the end of the year compared to the initial amount at the start of the year. This means that even if you don’t sell any of the cryptocurrency received from mining, you might still have an assessable income that will be taxed.
You will pay tax on the net income (your total income less deductions) at your marginal tax rate.
Staking of cryptocurrency
The Australian Taxation Office mentions the taxation of staking rewards briefly in their guidance. Tokens received as staking rewards should be reported as assessable income at the time the tokens were received.
If you later decide to sell the tokens, the cost basis (acquisition cost) will be the same as what you reported as your assessable income using the fair market value at the time they were derived.
6. Tax on Airdrops & Hard Forks
Tax on Airdrops
Airdrop of cryptocurrency tokens is often done as part of a marketing or advertising campaign. In some cases, you will need to register before a deadline to become eligible to receive tokens. You may also receive tokens just from holding another cryptocurrency in your wallet or on an exchange.
Similar to tokens received as staking rewards, tokens received through an airdrop are classified as ordinary income at the time when it became in your possession. You should look up the fair market value (eg. from a reputable exchange) to determine the value in AUD.
Tax on Hard Forks
Blockchains, e.g. the bitcoin blockchain, need to be updated from time to time. Such updates can result in a soft fork or hard fork. Updates that automatically get adopted by all participants is called a soft fork. This does not result in the creation of new tokens or a new blockchain. A hard fork, on the other hand, can result in a blockchain split where new tokens come into existence.
The Australian Taxation Office has provided guidance for the tax treatment of such chain splits. Cryptocurrency received from a hard fork should neither be taxed as ordinary income or as capital gain at the time when the split happened. Instead, you will make a capital gain when you actually dispose of the coins later. The cost basis of the received cryptocurrency should be considered as zero which makes sense since you did not pay anything to acquire them.
In most cases, Coinpanda classifies airdrops and hard forks automatically when you import your transactions from a wallet or exchange. On the Tax page, you will see a total overview of your crypto received as income, airdrops, hard forks, etc.
7. Tax on ICOs & IEOs
ICOs (“Initial Coin Offerings”) and IEOs (“Initial Exchange Offerings”) are a popular form of raising capital by companies and projects launching their own blockchain or token. In both cases, a person typically invests in a token that will be released in the future and pays with another cryptocurrency like bitcoin or ethereum.
The Australian Taxation Office has not provided specific guidance for the treatment of ICOs or IEOs, but since this is very similar to a crypto-to-crypto transaction, we can treat such transactions similarly for tax purposes. If you invest in token XYZ and pay with bitcoin, you will have to calculate capital gains on the bitcoin disposed of. You will need to use the fair market value of bitcoin on the date you made the investment which will also become the cost basis for the newly purchased tokens.
8. Cryptocurrency Gifts & Donations
As stated in the guidance issued by the ATO, gifting cryptocurrency is considered a disposal similar to selling. This means you need to work out the capital gains of the crypto if you transfer it to someone else. It doesn’t matter if you don’t receive anything back, it is still considered a disposal and CGT event.
On the contrary, receiving bitcoin or another cryptocurrency as a gift from someone is not considered a CGT event, but you do need to calculate the fair market value (in AUD) at the time you received the gift. This will become your cost basis which you need to calculate the capital gain or capital loss if you decide to dispose of the coins later.
9. Cryptocurrency Loans
If you are lending out your cryptocurrency on an exchange and receive interest, this should be considered as taxable income and needs to be reported. The ATO seems to not mention this specifically in their guidance, but a safe approach is to treat cryptocurrency received as interest similar to staking.
This means you should report it as assessable income using the fair market value at the time of receipt.
10. Tax on income as Cryptocurrency
Today, some employers are giving the option to their employees to have their salaries paid out in cryptocurrency instead of Australian dollars. The ATO states that crypto received as payment for salary or wages is considered a normal salary, and you should return the value of the cryptocurrency received on your income tax return.
If you are in doubt what you need to report, your employer should provide you with a payment summary (together with other reportable fringe benefits if any) for each income year. You need to convert the value into AUD using price data from reputable exchanges on the day you received the cryptocurrency as salary.
11. Minimize your Taxable Gains
There are several ways you can minimize your taxable gains and tax liability in Australia. First, it’s important to establish if you are considered to own cryptocurrency as an investment or if you are carrying on a business.
Deduct cryptocurrency losses
– Cryptocurrency as an investment
As already mentioned in this guide, if you own cryptocurrency simply for investment purposes, you will have to pay capital gains tax when you dispose of the assets later. You can use any capital losses to offset your capital gains. This means that if you have invested in a cryptocurrency that has lost value, selling all your coins will trigger a capital loss that can be used to reduce your total capital gains realized from other disposed assets.
You can also use any capital losses to offset capital gains in the future, but you are not allowed to deduct the loss from your other taxable income (eg. salary).
– Cryptocurrency businesses
If you are considered to be carrying on a business in the eyes of the ATO, all your profits and income from cryptocurrency will be considered as part of your total assessable income. This means that any losses can also be used to offset other income during the same tax year.
Keep in mind that the Non-commercial loss rule needs to be taken into account to work out if you need to offset or defer your loss.
Personal use asset
In Australia, you might actually disregard some capital gains (and capital losses) from the disposal of cryptocurrencies under certain circumstances. If the cryptocurrency is considered to be a personal use asset, you can disregard capital gains for CGT purposes it the asset was acquired for less than $10,000.
A cryptocurrency is not considered a personal use asset if any of the following conditions are met:
- the cryptocurrency is held as an investment
- used in a profit-making scheme, or
- used in the course of carrying on a business.
The most important thing to consider when deciding if an asset is a personal use asset or not is the time between acquiring the asset and spending it. Generally speaking, the longer you hold the cryptocurrency before actually using it (for example to pay for coffee), the less likely it will be a personal use asset from the ATO’s perspective.
You can read more about the treatment of cryptocurrency as personal use assets here.
Capital gains tax (CGT) discount
As already discussed, you might have to pay capital gains tax (CGT) if you dispose of a cryptocurrency for a higher price than what you originally purchased it for. However, if you hold the investment for 12 months or longer, you might actually reduce your tax burden by taking advantage of what is called CGT discount.
There are three criteria you need to pass in order to be eligible for the discount:
- you’re an individual, trust or complying super fund
- you acquired the cryptocurrency at least 12 months before disposing of it
- you did not choose to use the indexation method
You will need to document the actual holding time for each disposal you make, so it’s important to keep track of all your transactions on different exchanges. The following discount rates apply if you can take advantage of the CGT discount rule:
- 50% for individuals and trusts
- 33.33% for complying super funds and eligible life insurance companies
- No CGT discount applies to foreign resident individuals after May 8, 2020
It’s important to note that you can only reduce the capital gain after deducting all capital losses first. More detailed information about the discount method can be found on the ATO’s website.
Most exchanges charge trading fees when you buy, sell, or trade cryptocurrency. Trading fees are considered deductible costs that can be deducted from the sales proceeds amount.
If you have a large number of transactions, deducting the fee amount can make a significant impact on your total tax liability. Most crypto tax solutions like Coinpanda does this automatically for you.
Lost and stolen cryptocurrencies
You might be entitled to a capital loss if you no longer have access to your crypto assets if you lose your private keys or become a victim of fraudulent actions. See the next Section for more on this topic.
12. Loss or theft of cryptocurrency
To determine if you may be able to claim a capital loss due to no longer having access to your cryptocurrency, you need to first consider if the asset can be replaced or not. If you actually lost your private keys, and there are no ways to recover them, most likely the cryptocurrency can’t be replaced either.
The same rules apply for theft of cryptocurrency. The ATO has published guidelines for evidence you must provide in order to claim a capital loss:
- when you acquired and lost the private key
- the wallet address that the private key relates to
- the cost you incurred to acquire the lost or stolen cryptocurrency
- the amount of cryptocurrency in the wallet at the time of loss of private key
- that the wallet was controlled by you (for example, transactions linked to your identity)
- that you are in possession of the hardware that stores the wallet
- transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity
13. How to file your tax reports
Filing and reporting cryptocurrency taxes can sound complicated and intimidating at first. The whole process can be summarized in the following five steps:
- Download the transaction history from all exchanges where you have bought or sold any cryptocurrency. To calculate your cost basis correctly, it is important to include the history for ALL previous years.
- Review your transaction data and make sure that the calculated balance matches your actual portfolio.
- Look up and assign market rates to all transactions which do not include Australian dollars (Ex: ETH → LTC). This is required to calculate the cost basis correctly.
- Determine the cost basis value for each transaction according to either FIFO or LIFO.
- File your crypto taxes before the deadline. You can file your taxes either online or complete a paper tax return.
This can be a very tedious and complicated process for most people that have had more than a few transactions during the year. Most crypto investors prefer to use a cryptocurrency tax solution such as Coinpanda to help them with calculating and filing their annual tax report. Coinpanda simplifies this process by carrying out steps 1 to 4 automatically.
14. Record keeping of transactions
The ATO puts the responsibility of keeping records of all transactions on the taxpayer itself, whether you are holding cryptocurrency as an investment or are carrying out a business. Many cryptocurrency exchanges keep these records for a limited time only, so you should make it a habit to periodically export and save this information.
The following records related to your crypto transactions should be kept:
- the date of the transactions
- the value of the cryptocurrency in Australian dollars at the time of the transaction
- what the transaction was for and who the other party was (eg. the exchange or a wallet address)
It is vital to keep good records to make it easier to work out your capital gains and meet your tax obligations. Coinpanda’s tax product can create a capital gains report with all of this information for you.
15. Crypto tax deadline
The tax year in Australia is from July 1 – June 30 the following year. If you are completing your tax return for 2019/2020, it needs to be filed by October 31, 2020. Remember that filing after the deadline can lead to penalties and fees.
16. How can Coinpanda help?
Coinpanda is a cryptocurrency tax solution built to simplify and automate the process of calculating and filing your crypto taxes. Coinpanda lets you do this in four simple steps:
- Import all your transactions using API keys or CSV files
- Verify that your data is matching (and make necessary adjustments if required)
- Coinpanda calculates your capital gains for each cryptocurrency
- Download a tax report that can be submitted to the Australian Taxation Office (ATO)
Get started for free to find out more.
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