The Australian Taxation Office (ATO) uses familiar tax law on cryptocurrencies such as Bitcoin. Crypto tax calculator Koinly explains six important principles for understanding the tax considerations for crypto assets.
A lesser-known fact about crypto assets is that they are liable for capital gains tax and income tax. Here’s what accountants need to know to steer their clients out of the ATO’s firing line and into the clear.
1. Crypto is an asset
Crypto has some way to go before being used, or taxed, as legal tender. Instead, the ATO treats crypto as property and an asset for tax purposes.
It is therefore helpful to use the more accurate label of “crypto asset” to describe cryptocurrency in Australia.
An asset is any resource that you own, with economic value that’s expected to provide a future return. Like shares, investment property, collectibles – and crypto assets.
2. Capital gains tax (CGT)
When it comes to calculating the tax owed on crypto gains, all of the usual considerations apply.
You’ll need to know the cost base of the crypto asset at acquisition, its price at disposal, and convert all figures into Australian dollars. A crypto capital gain or loss could be triggered by four disposals:
- Selling crypto like Bitcoin for any fiat currency, like AUD
- Swapping crypto for crypto, like Bitcoin to Ether
- Spending crypto to obtain goods or services unless the personal use asset rule applies
- Giving crypto as a gift.
3. Capital gains discount
Crypto investors can take advantage of the ATO’s CGT discount, as if they were shareholders or art collectors. Investors who hold off disposing of their crypto for 12 months or more may pay 50 per cent less CGT.
4. Income tax
Crypto income is liable for income tax in the same way that salaries, dividends and bonuses are taxed. In crypto terms, the parallels look roughly like this:
- Getting paid in crypto – like a salary
- Staking rewards – like dividends
- Airdrops – like bonuses
- DeFi interest – like bank account interest
- Referral bonus – like commission
5. Buying is tax free
Under Australian tax law, the purchase of an asset for investment is tax free, bar any applicable GST. The same applies to cryptocurrency, except that crypto is GST-free as well.
You also won’t pay tax on any cryptocurrency when you receive it through mining, provided you are only mining at a hobby level, or if you are gifted crypto.
In each of these cases, while crypto might be tax free on the way in, it is likely to incur CGT at the point of disposal.
6. You could pay both income and CGT
How you receive your crypto and how you let it go are seen as two separate events. If you were to receive an airdrop worth A$50 on 1 January, that sum would form part of your total taxable income.
On 1 June, you decide to convert the airdropped coins into Australian dollars, and you discover that they are now worth A$80. As you paid no fees on receiving the airdropped coins, your gain is a straightforward calculation of A$80 - A$50 = A$30.
You will need to pay CGT on that A$30, even though you are paying income tax on the original A$50.
Now, imagine you held off converting your airdropped coins to dollars until 1 January of the following year. You will pay 50 per cent less capital gains tax for holding onto your asset for 12 months or more.
To help meet your clients’ record-keeping obligations and calculate their cryptocurrency tax, the use of specialised software is vital. Koinly’s Accountant Platform is a crypto tax calculator that imports all your clients’ crypto trade data to figure out their taxable totals – in line with the ATO’s requirements.
Koinly is a crypto tax calculator with a professional platform built for accountants. Save hours on spreadsheets and complicated calculations with Koinly.