Are my crypto assets taxable?

Cryptocurrencies are digital currencies created from code using an encrypted string of data blocks, known as a blockchain. From an accounting perspective, a cryptocurrency is an asset because it is a present economic resource controlled by the holder from which future economic benefits are expected. It follows that transactions involving crypto assets are subject to the same tax rules as those that apply to assets generally; there are no special tax rules that apply for cryptocurrencies. Hence, capital gains tax (CGT) may be payable on disposal of your crypto assets.

Transactions that involve a “disposal” for CGT purposes include:

a.     selling your cryptocurrency;

b.     gifting your cryptocurrency;

c.     buying goods or services with your cryptocurrency;

d.     trading or exchanging your cryptocurrency with another cryptocurrency; and

e.     converting your crypto currency into a fiat currency.

If you choose to stake your cryptocurrency – that is by locking your existing crypto asset to validate transactions on the blockchain and create new blocks – you may obtain rewards in return, usually in the form of additional tokens. This constitutes ordinary income for tax purposes.

What if my cryptocurrency is acquired for personal use?

Capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded for CGT purposes. A personal use asset is an asset that is kept or used mainly to purchase items for personal use or consumption. Cryptocurrency that is kept or used as an investment, as part of a profit-making scheme, or in the course of carrying on a business, is not a personal use asset. Even if your cryptocurrency is a personal use asset (unlikely), only capital gains made from disposing of cryptocurrency assets acquired for less than $10,000 are exempt from CGT liability.

Where cryptocurrency is acquired and used within a short period of time to purchase items for personal use or consumption, it is more likely to be a personal use asset. Where cryptocurrency is acquired and held for some time before it is used to purchase such items, or only a small proportion of the cryptocurrency acquired is used to purchase such items, it is less likely to be considered a personal use asset. Nonetheless, if you hold your cryptocurrency for at least one year before disposing it, you would be entitled to a 50% CGT discount.

Can the Australian Taxation Office (ATO) track my crypto assets?

The answer is, absolutely. If you have an account with a cryptocurrency designated service provider (DSP), you would have been required to provide Know Your Customer (KYC) information when signing up for the Australian exchange or wallet. Owing to the data-sharing program the ATO has with all DSPs, the ATO is aware of all your cryptocurrency transactions. The ATO compares the data provided by DSPs with its own records to ensure compliance with registration, reporting, submitting and payment obligations.

You must report any disposal of your crypto assets. and keep the following records (as applicable):

a.     receipts of when you buy or transfer your crypto assets;

b.     exchange records;

c.     records of agent;

d.     accountant and legal costs;

e.     digital wallet records and keys; and

f.      software costs that relate to managing your tax affairs.

These records must be kept for 5 years from the later of:

a.     when you prepare or obtain the records;

b.     when transactions or acts are complete; or

c.     the disposal of the crypto asset.

You must understand the tax treatment of your cryptocurrency and comply with all requirements.

If the ATO are investigating your crypto assets or any other tax issue, contact our Commercial and Property team today and obtain strong representation.  

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice beforetaking any course of action.*