The number of Australians investing in cryptocurrency (commonly referred to as Crypto) has grown rapidly over the last couple of years, however many investors are unaware of their tax obligations when dealing with crypto. Due to the increase in crypto traders and investors, crypto is an increased area of scrutiny for the ATO.

What is cryptocurrency?

Cryptocurrency is a term used to describe a digital or virtual currency. Crypto’s use “decentralised control” meaning crypto’s cannot be controlled by governments. Instead, crypto is commonly controlled on what is known as a blockchain. There are over 4,000 different cryptocurrencies and the number is constantly growing.

How do I obtain cryptocurrency?

The most common way of obtaining crypto is by buying or trading the crypto on an exchange. The rest of this article will explain your tax obligations in doing so.

However, there are many other less common ways to obtain crypto. Whilst the rest of this article does not specifically discuss the tax treatments of these methods, obtaining crypto via these methods do often lead to complex tax consequences for you to consider. These methods include but are not limited to:

  • Mining
  • Staking
  • Airdrops
  • Receiving crypto in exchange for your goods or services
  • Microtasks
  • Playing NFT games

What you need to know about crypto and your tax return

Often investors believe the ATO are not aware of their crypto investments because the crypto exchanges are not as regulated as exchanges in the share market, however the tax office has been receiving reports from numerous crypto exchanges on the crypto dealings of Australians. The ATO also receives data on account sign up information provided to crypto exchanges and this does include foreign exchanges. Unfortunately, if you have acquired/traded or sold crypto the tax office is most likely aware of it!

Most transactions are taxing points when dealing in crypto which can include:

  • Selling crypto for a flat currency such as the Australian Dollar
  • Trading or exchanging crypto (including from one crypto to another)
  • Purchasing goods or services with crypto
  • Gifting crypto

The ATO currently does not consider crypto as a currency like the Australian Dollar, instead the ATO recognises crypto as an intangible asset with similar properties to shares. This means each time you transact with crypto, a capital gains event needs to be included in your tax return.

Alternatively if you transact often enough to be deemed a “crypto trader” you may be deemed to be in the business of trading crypto and will need to declare your crypto business dealings on your tax return. The ATO provides guidance on how to determine whether you would be deemed as a trader when dealing with shares. The same concepts can be adopted to crypto. More information can be found here.

Even if you make losses when trading/exchanging or selling your crypto, these still need to be included in your tax return and the losses can be used to offset any other gains you made in the same year or in future years.

What happens if I do not include my crypto transactions on my tax return?

Not including your crypto transactions on your tax return opens you up to a high risk of audit due to the amount of data the ATO is receiving from the exchanges. Under an audit you may be liable for penalties and interest on top of any tax payable on the crypto transactions which had been omitted from the tax return.

What information do I need to obtain in order to include the crypto transactions in my tax return?

Unfortunately no crypto exchanges currently prepare tax reports in line with Australian legislation making accounting for crypto dealings quite time consuming and complex. This means engaging an accountant for assistance with the calculation of tax on your crypto dealings for your tax return can be quite costly. Fortunately there are third party crypto tax websites such as Koinly which can assist with simplifying this process at the cost of a subscription.

If you have not setup your crypto tax account with a provider such as Koinly or you do not wish to do so, you will need to obtain the following information to calculate the tax to include in your tax return:

  • A record of all crypto transactions and interest earned. Often crypto exchanges will allow you to download an excel report summarising these for the year.
  • Records on any other crypto your earnt from less common methods such as mining, staking, airdrops etc.
  • If you loaned money to invest into crypto, interest paid on the loans during the year.

It’s always best to seek the advice of an expert to ensure your crypto transactions are correctly disclosed in your tax return. Please contact our team with any questions you may have.

Written by Chris Chong/ Senior Accountant/ Element Business