Australia Cryptocurrency Taxes - The Complete 2020 Guide
Australia’s cryptocurrency tax policy is receiving more focus after the ATO announced its plans to create a special task force focused on tackling cryptocurrency tax evasion. This guide discusses how cryptocurrencies are taxed in Australia and provides tips on making compliance easy for citizens.
Australia Cryptocurrency Taxes - The Basics
The Australian Tax Office (ATO) has released guidance detailing the tax implications of cryptocurrencies in Australia (specifically "Bitcoin, or other crypto or digital currencies that have the same characteristics as Bitcoin").
Fundamentally, capital gains tax (CGT) applies to cryptocurrency at the time it is disposed of. You dispose of cryptocurrency when you sell it, trade it for another cryptocurrency, or use it for a purchase etc. This capital gain is simply the difference between the AUD value of the cryptocurrency at the time of the disposition minus the AUD value of the cryptocurrency at the time it was acquired. You are required to keep records of every capital gain event for five years after the event occurs.
John purchases Bitcoin on Binance. He pays AU$1200 for 0.1 BTC. Three months later after his Bitcoin increased in value to AU$1500, he traded it for another cryptocurrency, ETH.
In this case, John has disposed of his Bitcoin and has triggered a capital gains tax. He will owe a percentage tax on his AU$300 gain.
Note: if you are a professional trader, then trading stock tax treatment may apply instead of capital gains tax treatment.
The Challenge for Traders
This capital gain/loss calculation sparks a variety of problems for crypto traders. Some traders have been trading crypto for months, possibly years, and haven’t been keeping track of their cost basis or Fair Market Value of their crypto in AUD at the time they traded it.
It's also not easy to keep track of AUD values for most trades as they are typically quoted in other cryptocurrency values, not in AUD.
Both cost basis and Fair Market Value information is needed for traders to accurately file their taxes and avoid problems with the ATO. Depending on the volume of trades you have carried out, calculating gains could become extremely tedious, and potentially impossible to do by hand if you haven’t been keeping perfect records. Imagine having to perform this calculation for hundreds or even thousands of trades.
Because of this challenge, a lot of Australian cryptocurrency users are turning to crypto tax software to automate the entire tax reporting process.
When To Report
The Australian tax year runs from July 1 — June 30 the following year. If you are lodging your own tax return, it must be completed by October 31 in the same year that the tax year ended. Delays in filing your cryptocurrency taxes can lead to penalties and fees.
Personal Use Asset
Some exceptions from capital gains tax may apply for cryptocurrency held as a "personal use asset". An example is purchasing up to AU$10,000 of cryptocurrency to directly buy something else with crypto, over a short time period. However, these events are generally rare, and if the ATO questions your classification, the burden of proof is on you to show that it was in fact a personal use asset. According to the majority of tax professionals, not many transactions fall under the “personal use” case.
Capital Gains Discount
If you have held your cryptocurrency for more than 12 months before the relevant CGT event (disposal) occurs, then you may apply the Capital Gain Tax Discount Method. To apply this, first calculate the capital gain, subtract the cost basis (including fees) from the capital proceeds, deduct any capital losses, and then reduce the capital gain by the relevant discount percentage:
- 50% for resident individuals (including partners in partnerships)
- 33.33% for complying super funds and eligible life insurance companies
- 50% discount is removed or reduced on capital gains made after 8 May 2012 for foreign resident individuals
Keep in mind that you subtract capital losses from total capital gains before applying any discount.
Of course if you have not held your cryptocurrencies for more than 12 months, these discounts do not apply. When determining whether you acquired your cryptocurrency 12 months before the capital gains event, exclude both the day of acquisition and the day of the CGT event.
Appropriate Costing Methods
When a taxpayer can identify shares by reference to individual coins or with appropriate accounting records, the ATO requires that you use specific identification for Capital Gains Tax purposes. However, if the taxpayer is unable to identify the shares (which is common in the world of cryptocurrency trading), the taxpayer is required to use First-in First-out (FIFO) accounting.
Read our guide for a complete breakdown on FIFO for cryptocurrency taxes.
Once you calculate your capital gain amount, you can lookup the amount of capital gain tax owed by referring to your marginal income tax rate. Capital gains are taxed at the same rate as your marginal income tax rate.
Mined cryptocurrency will be taxed differently depending on whether you operate as a business or simply as a hobby.
Either way, the cryptocurrency you receive from mining payouts should be treated as income using the value in AUD of the cryptocurrency at the time it was mined. You will pay tax on this income at your marginal rate.
You can import your mining payouts into crypto tax software like CryptoTrader.Tax to automatically generate a report that details the AUD value of your cryptocurrencies at the time of receipt. Use this report to help file your taxes.
When you receive cryptocurrency from a fork (i.e. receiving Bitcoin Cash from the forked Bitcoin chain), no income is incurred. Your cost basis in the new cryptocurrency is $0, and capital gains tax will apply at the time of disposition of the forked crypto.
For example, if you trade your Bitcoin Cash for Bitcoin 6 months after receiving it, you need to report the gain on your taxes.
*Note* If the forked coin is held by a business rather than an individual, the coin will continue to be treated as trading stock instead of a capital gain asset. The asset must be brought to account at the end of the income year.
If you lose access to your cryptocurrency, you may be eligible to claim a capital loss. You will need to be able to provide the following kinds of evidence to claim the 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 (eg. transactions linked to your identity)
- That you are in possession of the hardware which 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
How to Pay
Using Crypto Tax Software for Australian Crypto Taxes
You can easily build your complete capital gains and losses reports from your cryptocurrency trading with crypto tax software. You can then include this data with your tax return.
Start by importing all of your historical data from all of your exchanges and cryptocurrency platforms.
Make sure you have the Australian tax year and the Australian dollar selected as your home FIAT currency in your User Settings.
CryptoTrader.Tax will automatically build out your tax reports across all years using historical data. It will provide you with reports that you can give to your tax professional or use to file yourself.
Adding Forked Income
Australia treats cryptocurrency received from forks as a zero cost basis asset. To add your crypto received from forked coins into CryptoTrader.Tax, simply add a manual trade with the generic exchange template in step 2 of the app. Use AU$ 0 for the value of the trade. This will assign it a zero cost basis.
For example, if you received 1.25 Bitcoin cash from a hard fork, you would add a trade receiving 1.25 Bitcoin cash, and trading AU$ 0 for it.
Looking For More Information?
You can learn more about the taxation of cryptocurrency by checking out the rest of our blog!
Disclaimer: This post is for informational purposes only and should not be construed as tax, legal, or investment advice. The area of cryptocurrency taxation is constantly evolving. Please speak to your own tax expert, CPA, or attorney on how you should treat taxation of digital currencies.