Like it or not, it appears that cryptocurrencies are here to stay. If you haven't already dabbled in crypto (or even if you have) you should be aware that the ATO has you in their sights.
If you are planning to purchase cryptocurrencies, you should be aware that there are various taxation consequences associated with the purchase, holding and disposal of these digital assets. Below is a summary of the ATO's current view with regards to capital gains tax and cryptocurrencies.
The ATO has issued various rulings regarding the tax treatment of cryptos, including in relation to capital gains tax. For tax purposes, the ATO considers cryptocurrencies as capital assets and not money and each cryptocurrency is considered a separate asset. Accordingly, if you make a capital gain on the disposal of your cryptocurrency, some or all of the gain may be taxed. Bear in mind that a "disposal" of your cryptocurrency can occur when you:
- sell or gift your cryptocurrency;
- trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency);
- convert cryptocurrency to fiat currency like Australian dollars; or
- use cryptocurrency to obtain goods or services.
Are there any CGT exemptions for crypto?
Yes. You will not be liable for CGT gains if you purchased a cryptocurrency:
- as a personal use asset; and
- the cryptocurrency was acquired for less than $10,000.
Cryptocurrency is not a personal use asset if it is acquired, kept or used:
- as an investment;
- in a profit-making scheme; or
- in the course of carrying on a business.
Cryptocurrency may be a personal use asset if it is acquired mainly to purchase items for personal use or consumption. The relevant time for determining whether or not an asset is a personal use asset is at the time of its disposal. This is because the way the asset is used may change during the period of ownership. For example, a cryptocurrency may be purchased with the intention of using it as a personal use asset (say, to use it to purchase groceries, buy tickets for events) but during the period of ownership you may decide to purchase more cryptocurrency and hold on to it as an investment and make a profit. The longer the period that a crypotcurrency is held, the less likely it will be considered a personal use asset.
The cryptocurrency must have been acquired for less than $10,000 for the personal use exemption to apply. Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.
Whether the cryptocurrency you purchased is being used as a personal use asset, for investment or in the course of business, you should keep at least the following records:
- the date of the transactions;
- the value of the cryptocurrency in AUD at the time of the transaction (you can get this from a reputable online exchange);
- what the transaction was for and who the other party was (their cryptocurrency address is sufficient);
- receipts of purchase or transfer of cryptocurrency;
- exchange records;
- records of agent, accountant and legal costs;
- digital wallet records and keys.
Keeping the above records will assist you when it comes time to work out your tax obligations in relation to your cryptocurrency assets.
So each time you trade, sell or gift a cryptocurrency, you will need to work out whether you have made a capital gain or loss. Begin by asking yourself whether the cryptocurrency was held as a personal use asset and if it was, then whether the value at the time of purchase was less than $10,000. If these criteria are satisfied, then any capital gain may be disregarded. Otherwise, any capital gain or loss will need to be included as part of your income tax return. Note that different taxation rules apply if you are using cryptocurrency in the course of your business.
The taxation treatment of cryptocurrencies is still in early stages and no doubt will rapidly evolve with the expanding adoption and use of cryptocurrencies. There are still many grey areas and it is important to seek professional advice in order to ensure that you are meeting all your legal and taxation obligations.
To discuss, please contact Dajana Malnersic on 02 9234 1500.