Firstly a disclaimer: taxation legislation is, in general, a bunch of rules band-aided together. Specific circumstances matter a lot so don’t rely on this for more than a starting point for your own research.
The crypto gains you make will generally be treated the same as gains you make on shares trading / foreign currency trading. That is capital gains tax (CGT).
Capital gains tax is designed to be a catch-all tax. Most tax legislation goes along the lines of if X happens then you get taxed. Capital gains is the opposite, think whitelisting vs blacklisting.
Capital gains taxes you pay on any gain on a CGT asset. And the definition of a CGT asset is ‘any kind of property or any kind of legal or equitable right that is not property’. AKA literally everything.
Now capital gains have the lowest precedence of the tax legislation. If your specific circumstances result in that crypto gain being taxed under other legislation then that will override the CGT (aka quitting your day job and becoming a crypto trader full time will have a different tax treatment). But ignoring that cause most of us here would be caught by CGT rules.
Now if you buy some crypto (or shares or foreign currency) the price per coin you paid is the cost base of the CGT asset. So you buy 10 coins at $1 per coin then the cost base is $1 for each coin. Other things can contribute to the cost base, the main one for us being transaction fees. But easiest and probably most correct is to simply take the full amount you paid in AUD and divide it by how many coins you got.
Then you sell 5 of those coins for $2 each. Which means you received $2 in proceeds per coin.
Take the proceeds, minus the cost base and you get the capital gain.
So selling those 5 coins gives you $10 proceeds, with a $5 cost base means you get a $5 capital gain.
Now that capital gain goes in your tax return along with your regular salary and dividends etc, like so:
Bank Interest: $100
Capital Gains: $5
Total Taxable income: $60,105
50% CGT Discount
Probably the most relevant and accessible discount is the is the 50% CGT discount if you hold the asset for longer than a year. In our example, the $5 gain would be reduced to a $2.50 net capital gain.
You will have to do this calculation for every coin that you sell during the financial year.
A Zero cost base is allocated to these assets, therefore your sale proceeds less your cost base (zero) is the amount you will pay tax on.
See 50% discount
Cryptocurrency tax returns are currently seen as high risk returns and therefore will be subject to an increased chance of an audit.
How could this be traced to you though?
Retrospectively. Where the ATO believe there has been fraud or evasion there are no time limits to when they can audit & amend an assessment.
It is a requirement before an exchange allows you to register that you identify yourself, many icos now have mandatory KYCs, and all banks under the current federal legislation are required to report transactions over 10k to AUSTRAC
You need to remember that the blockchain is a publicly available ledger and the ATO will have data matching software available in the sort term future where they will be able to go back and clearly see non-compliance.
What if I don’t declare my cryptocurrency to the ATO?
If you’ve made investment gains on cryptocurrency and don’t declare them to the ATO, then that’s probably tax evasion. We appreciate some don’t want to pay tax but be warned tax evasion can have severe consequences. The ATO are well aware people have made gains on cryptocurrency and they utilize multiple data matching sources to identify tax evaders. Remember, the blockchain is a publicly available record and it’s likely only a matter of time before the ATO has the capability to match you against those blockchain records.
If the ATO suspect you have not declared gains, then they have the power to issue you with a default tax assessment. You do not want this to happen!
Once the ATO has issued a default assessment, you must not only prove the ATO have got it wrong, you must also prove what is correct. So, in any case, you’ll be liable for unpaid tax plus penalties plus interest – this won’t be cheap. Therefore, it’s our advice to you, play it smart by talking to us early so we can get you the best possible tax outcome legally.
Bilateral Data Sharing
In a bid to fight attempts for tax avoidance, ATO plans to use data-matching techniques based on data sharing agreements with other countries,
Read more: https://cryptovest.com/news/australia-to-fight-crypto-tax-avoidance-with-bilateral-data-sharing/
Can Capital losses be used to offset Salary Income (and therefore a larger PAYG Withholding refundable)?
Capital losses can only offset capital gains, not regular salaried income, however, it is possible to carry forward tax losses to future years and offset against say, the capital gain on an investment property.
Difference for collectables losses, which can only be used to offset collectible gains.
Carrying on a Business
Straight from the ATO Website
Characteristics of a business
There is no single factor that determines if you are in business, but some of the factors you need to consider include:
You’ve made a decision to start a business and have done something about it to operate in a businesslike manner, such as registered a business name, or obtained an ABN.
You intend to make a profit or genuinely believe you will make a profit from the activity even if you are unlikely to do so in the short term.
You repeat similar types of activities. The size or scale of your activity is consistent with other businesses in your industry.
Your activity is planned, organised and carried out in a businesslike manner. This may include keeping business records and account books having a separate business bank account operating from business premises having licenses or qualifications having a registered business name.
If you aren’t in business yet, it is important to keep these factors in mind as your activities change or grow, so you’ll know when you need to register for tax and other business responsibilities._
Coin Market Capital
Probably the most widely used indicator for the price of crypto based on the average price on most large exchanges accross globe.
It is recommended to not use coin market capital for the cost base or sale process in your calculations.
This is because the ato have requested calculations be completed based of a “reputable exchange”.*
*The difference may be seen to be immaterial.
I.e CryptoKitties & Dodger Tokens
From ATO website
You disregard any capital gain or loss you make from a collectable if any of the following apply:
- you acquired the collectible for $500 or less”
This assumes you are not “in the business” of trading tokens, and we are only talking capital gains.
A large-scale business operation in mining.
Likely to have thousands of dollars worth of equipment (including mining, cooling, solar, etc) and ran from a dedicated premise. it is important to differentiate from a commercial mining opperation and a hobby mining operation.
See Carrying on a business & Hobby Mining
Whether a commercial miner sells or collects the mining rewards has no impact on whether they are a commercial miner or not.
Broadly speaking, a commercial miner is taxed as follows.
Profit 100% assessable, (profit = income - expenses)
Income = rewarded coins from mining & potentially movement in Trading stock
Expenses = Equipment, depreciation, Running cost expenses & potentially movement in Trading stock
Depending on size you may have GST obligations & may need to complete Business Activity Statements.
This is a tricky subject which varies on a case by case basis. The idea behind paying off your credit card with crypto is to fall under the definition of “personal use assets” for your purchases and therefore be exempt from CGT. See personal use assets”
Based on new wording on the ATO Website, it would be extremely difficult to fall under the personal use definition.
Cloud Mining Contracts
Outsourcing mining to an external entity. If venture is profit seeking & falls under carrying on a business, then the fee would be deductible
Atomic cross-chain trading is two parties, A & B who own coins in seperate cryptocurrencies and want to exchange them without having to trust a third party (centralized exchange).
This would trigger CGT as a disposal of one CGT asset & the purchase of a new CGT asset.
A non-atomic trivial solution would have A send X-Coin to B, and then have B send Y-Coin to A. The issue here is trust, because B has the option of going back on his end of the bargain and simply not following through with the protocol, ending up with both X-coin & Y-Coin
The most difficult method of purchasing crypto from a tax compliance & audit perspective.
Hardest for ATO to track especially if amount is under $10,000.
escapes all KYC requirements & no audit trail for the AUD.
When you leave Australia if you cease to be an Australian resident while overseas, the ATO deem any assets not considered to be taxable Australian property, to have been disposed of for CGT purposes.
This means you become liable to pay CGT on the entire amount. If you intend on returning to australia, It is possible to delay CGT until the sale of the CGT asset.
See Disregard / Delay CGT on becoming non-resident
Disregard / Delay CGT on becoming non-resident
If you’re an individual, you can choose to disregard all capital gains and losses you made when you stop being a resident.
If you cease being a resident and you make this choice, those assets are taken to be taxable Australian property until the earlier of:
a CGT event happening to the assets (for example, their sale or disposal), or
you again becoming an Australian resident.
The effect of making this choice is that the increase or decrease in the value of the assets from the time you cease being a resident to the time of the next CGT event, or of you again becoming a resident, is also taken into account in working out your capital gains or losses on those assets. The way you prepare your tax return is generally sufficient evidence of your choice.
Varies on case by case basis, just because an item is on this list does not mean it is deducbile. this list is only to give some ideas.
- Hardware Wallet - (Ledger Nano, Trezor, etc)
- Safe / Storage
- Safety Deposit Box
- USBs / Harddrives
- Portion of internet access
- Portion of laptop/PC
- Computer equipment (Monitors, keyboards, etc)
- Exchange Transaction fees (more likely to be Cost Base)
- Educational Crypto Conferences
Estate planning involves developing a strategy to deal with your assets after you die the legal instruments and structures, such as a will, you put in place to transfer your assets in the event of death.
It is important to participate in Estate Planning, and also very important to not Comprimise security,
Exchange outside of Australian jurisdiction######
i.e Foreign Crypto Exchange or Decentralised exchange
Residents in Australia for tax purposes are taxed on their worldwide income, this includes capital gains.
If you offer an exchange service, receive a commission or fee & are carrying on a business, regardless on the currency your profit will be assessable.
in order of largest AUD volume per 24hrs as at date of writing (sept 2018)
85. BTC Markets -
116. Independent Reserve -
121. ACX -
185. Bisq -
Employee Salary & Contractor payments
CGT? FBT? PAYGW?
The employer has the obligation to withhold PAYG on your regular income, regardless of whether you are being paid in Crypto or AUD. Standard rates apply.
Other arrangements may come under FBT Depending on the specific situation
Once you receive a salary in Crypto, there may still be CGT going forward if it is seen that you are holding onto it as an investment. if you immediately convert into AUD with minimal fluctuation then any gain can be disregarded.
Another word for mining, see Mining.
What if you buy the coins as a tax paying resident (not a citizen) of one country (say USA) and then sell them years later in Australia, having returned as a citizen?
If you are an Australian citizen for tax purposes (note this definition is different to just being an Australian resident) you are required to report CGT on assets anywhere in the world.
However, if you are required to pay CGT on this disposal for the other country, (say USA) there are currently foreign tax offset rules with a handful of countries (USA includes) which would mean you are only paying tax once.
Simply put, If the other countries tax rate is more favourable you would pay at the ATOs rate
If the other countries tax rate is less favourable you would pay at their rate and no additional tax would be payable in Australia.
A Zero cost base is allocated to these assets, therefore your sale proceeds less your cost base (zero) is the amount you will pay tax on.
See 50% discount
A hobby miner or forger is someone who participates in cryptocurrency mining/forging as an enjoyable pastime not in a business-like manner seeking commercial profits. Their investment in mining equipment will be relatively insignificant - a small scale operation typically at home - and intention to accumulate the rewarded coins rather than sell immediately to turn a profit.
If you’re a hobby miner or forger, then broadly speaking this is how you’re taxed:
Rewarded coins are not income but rather a capital acquisition
Cost of equipment is allocated as a cost of acquisition of the rewarded coins
Running costs are also allocated as a cost of acquisition of the rewarded coins
On disposal of the rewarded coins, gains are 100% taxable if within 12 months of being acquired, otherwise 50% taxable where held for more than 12 months.
Inventory - First in First Out (FIFO) vs Last in First Out (LIFO) vs Weighted Average
Initial Coin Offering
If your business wants to raise funds through an Initial Coin Offering (“ICO”) then be aware technical execution is just one piece of the puzzle. There is a plethora of tax consequences to review and consider with respect to income tax, GST and fringe benefits tax. How your ICO is taxed will depend on a variety of factors and notably whether you are offering a utility token or a security token.
Private Fund - When a group of private investors (think Family & Friends) pool their money together & buy cryptocurrency
Retail Funds - Marketing an investment fund to the public will likely require the operator to meet financial licensing requirements per regulations, and you should seek legal advice before commencing a retail investment fund. It is imperative that an investment fund is appropriately structured at the beginning to help reduce tax complications down the road.
Investor Vs Professional Trader
see In the business off
The nature of the activities, whether there’s a profit-making purpose
Whether the person intends to carry on a business
Whether the activities are repeated and regular
Whether they’re organized in a business-like manner eg keeping books and records
Amount of capital employed, although this isn’t a definitive factor
Whether the activity is better described as a hobby/recreation
As an investor, you can only offset a capital loss against a capital gain. The problem here is that many people don’t realise their losses during the tax year, and from a tax perspective they make a large capital gain with no funds to cover the tax bill.
A trader is someone who is trading in and out of cryptocurrency seeking to make a profit from short-term price movements. This includes those taking advantage of price arbitrage across exchanges; those utilizing technical analysis - day/swing traders; bot traders; those flipping ICOs on pump and dumps; etc.
If you’re a trader, then broadly speaking this is how you’re taxed:
Profit – 100% tax assessable
Loss – 100% tax deductible (subject to passing non-commercial loss rules)
You may also have GST compliance obligations
A key factor the ATO have held is, in most legal cases, the greatest weighting is given to the repetition/regularity of the activities. More often = more likely to be considered a trader.
If you’re a trader, everything is brought to an account in a profit/loss statement. Gains will be treated as personal income, and losses can be used to offset tax on your regular income
If you’re an investor, you can only use losses as offsets for future CGT gains. If you hold an asset for more than 12 months, then you get a 50% CGT discount
Pros and Cons of both cases
Don’t need to have an ABN to be considered a trader
In the Business
Mining as a business Vs Mining as a hobby
indexation method of calculating your capital gain
Occasionally you will see the indexation method being a potential method which you can calculate your capital gain based off. this is incorrect and just a generic response as the indexation method to calculate your capital gain can only be used if a capital gains tax (CGT) event happened to an asset you acquired before 11.45am on 21 September 1999. any professional which includes this comment as part of a generic response should be disregarded.
KYC - Know Your Customer
LROS - Living Room of Satoshi
Loss or Theft of Cryptocurrency
may be entitled to claim a capital loss, however, will need to prove the loss with evidence.
Leasing Hardware Mining
Merchants are somebody who received crypto as payment, different methods include different tax treatment.
Different types of merchants:
*Immediately convert into AUD
If you’re a business who has partnered with a cryptocurrency payment processor, then you may have chosen to allow customers to pay your bills in cryptocurrency but have AUD deposited to your bank account. The payment processor is immediately converting the cryptocurrency to AUD for you. This is the far simpler approach for Australian tax purposes as it pretty much means business as usual – book the AUD bank deposit as income, pay tax and GST where applicable.
*Keep the crypto
Some businesses choose to keep the cryptocurrency from the sale, rather than immediately convert to AUD. As a result, the cryptocurrency held by the business typically becomes trading stock with tax implications arising on later disposal by recognizing profits or losses. This makes the situation a little more complex and you really must keep good records.
If I start mining crypto and don’t cash out before 30 June, how do I declare the Bitcoin and at what value in my tax return? Can I offset equipment and electricity costs? How much tax would I pay?
Generally, when undertaking Bitcoin mining activities, it needs to be determined by analysis of your own activities as to whether this involves carrying on a business or not: see Are-you-in-business on our website for more information. If your circumstances are such that you are in the business of Bitcoin mining you will need to treat your activity the same way as any other business activity.
If you are carrying on a business of bitcoin mining:
All reporting to the ATO must be made in Australian dollars. To convert the value of Bitcoin to Australian dollars you can use the Bitcoin value as published by a reputable exchange on the date of the relevant transaction. You can find more information on our website about record keeping for Cryptocurrency.
Where you are in the business of mining bitcoin, any income that you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income.
Any expenses incurred in respect to the mining activity – including electricity costs - would be allowed as a deduction. The cost of capital assets, such as hardware and software can be depreciated over their effective life.
If you are in business you may be able to apply the small business instant asset write-off to the cost of capital assets. For more information see Applying the $20,000 instant asset write-off or Deductions on our website.
As a miner carrying on a business, any bitcoin that you acquire from mining is treated as ‘trading stock’. As in any other business, proceeds from the disposal of trading stock represent assessable income. Also, even if you don’t dispose of your bitcoin, an increase in the total of your trading stock value at the end of the year from any amounts at the start of the year is treated as assessable income, (while a decrease is treated as an allowable deduction). This is also referred to as ‘bringing your trading stock to account’ at the end of the year. There are three methods for working out the value of trading stock at end of the year. For information about valuing trading stock see information on our website about valuing-trading-stock.
Losses you make from a business of Bitcoin mining will be deductible against your other income, however losses you make will be subject to the Non-commercial loss provisions.
Your net income (roughly income less deductions) is the amount that is included in your assessable income, and you will pay tax on this income at your marginal rate.
If you have undertaken some Bitcoin mining activities in a way that is not part of a business your mined Bitcoin would constitute holding of an asset, and the Bitcoin you hold would be a be a capital gains tax (CGT) asset. This means that the CGT rules would apply. No deductions would be allowable. The CGT rules would need to be applied on the disposal of the Bitcoin. You can find more information about Cryptocurrency as an investment and how to work it out on our website.
Although you may view your mining activities as a hobby, the personal use asset exemption rules would not apply to exclude any capital gains made on disposal of the bitcoin. The exemption applies on the basis of how you use or keep the bitcoin that you have acquired from your previous mining activities. Even if your costs of mining the acquired bitcoin are less than $10,000, this would not fit within the definition of that of using or keeping mined bitcoin as a personal use asset. A personal use asset is defined as an asset “that is used or kept mainly for your personal use or enjoyment”. The primary situation that the ATO considers that Bitcoin can be used or kept mainly for personal use or enjoyment is where it is (acquired and then) kept temporarily in order to obtain personal use items- such as paying for goods or services with cryptocurrency. In your situation your main ‘use’ or ‘keeping’ of the bitcoin is not for personal use or enjoyment.
non-commercial loss rules
all transactions must be reported in AUD.
For a currency which is not listed on any Australian exchanges, you must be able to prove via your record keeping as to how you came to the AUD Value
Personal Use Assets
There does exist a CGT exemption for personal use. If you use a crypto-currency to pay for a personal transaction, the gains can be disregarded if the cost of the coins is less than $10,000.
Anyway like with most tax-related issues there are technicalities and areas that are heavily debated. Crypto is super new so the guidance given is minimal and the waters haven’t really been tested yet. The ATO notes that are released however do say if you give it a go they will be forgiving and they wont be penalizing people. This I would assume means that as long as you aren’t trying to hide your gains from the ATO then you should be alright.
originally the ATO wording was along the lines of (paraphrasing) “if you purchased crypto for less than $10,000, then all capital gains for personal use are exempt”. Then crypto went up x1000 and the ATO quickly backtracked because anyone with $5,000 for a cost base was sitting on $5,000,000 which could have been classified as exempt. not a chance.
This is what is probably causing the most confusion, as everyone is trying to fall under this category however the wording has been cleared up a fair bit and people just don’t want to read it because it does not tell them what they want to hear.
The way I read the current wording is that if you buy crypto because your favourite coffee shop which is just down the road is offering a 5% discount then
” The longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset. “
” Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption. Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded.”
” Example - Michael wants to attend a concert. The concert provider offers discounted ticket prices for payments made in cryptocurrency. Michael pays $270 to acquire cryptocurrency and uses the cryptocurrency to pay for the tickets on the same day. Having regard to the circumstances in which Michael acquired and used the cryptocurrency, the cryptocurrency is a personal use asset.”
Self Managed Super fund
Can a SMSF invest in crypto?
Yes. However, it is imperative that the SMSF is appropriately structured and managed.
Who can have a SMSF?
Most Australians can setup a Self-Managed Superannuation Fund. Running a SMSF is an onerous task as you are responsible for making prudent investment decisions and must abide by strict regulations.
The general industry rule of thumb is you need at least $200,000 in a SMSF for it to be worthwhile considering. This is because otherwise, the administration costs may be prohibitive.
How do I set up a SMSF?
Typically, the first step is for you to approach an accountant to discuss whether a Self-Managed Superannuation Fund is right for you. Financial regulations require the accountant to provide a Statement of Advice before proceeding with establishing a SMSF. Once the SMSF documentation is signed, you open a bank account and request your existing superannuation fund to transfer your superannuation interest to the SMSF. After your SMSF receives the money, it is your responsibility to begin investing it.
How is cryptocurrency taxed in a SMSF?
On disposal of a cryptocurrency investment by a Self-Managed Superannuation Fund, the fund will have made a capital gain or loss. The gain is taxed at 15% unless the cryptocurrency was held for more than a year, in which case the tax rate could fall to 10%. Losses can be offset against gains made on other investments. However, if you are receiving a pension from the fund, the tax rate on gains could possibly fall to 0%.
A Zero cost base is allocated to these assets, therefore your sale proceeds less your cost base (zero) is the amount you will pay tax on.
See 50% discount
##Taxable Australian Property ######
includes assets directly related to Australia
*a direct interest in real property situated in Australia
Tax Avoidance & evasion
Very serious topic, if you are worried where you sit, it’s probably best to take the most conservative option.
Anti Avoidance Rules
“Having regard to the eight matters specified in Part IVA, would it be objectively concluded that you
or any other person entered into the scheme or carried out the scheme, or any part of it, for the sole
or dominant purpose of obtaining the tax benefit?
The eight matters are:
1. the manner in which the scheme was entered into or carried out
2. the form and substance of the scheme
3. the time at which the scheme was entered into and the length of the period during which the scheme was carried out
4. the result achieved by the scheme under the income tax law if Part IVA did not apply
5. any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result from the scheme
6. any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, that has resulted, will result, or may reasonably be expected to result, from the scheme
7. any other consequences for the relevant taxpayer, or for any person referred to in matter 6 (above) of the scheme having been entered into or carried out, and
8. the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in matter 6
Following the ATO’s legislation, an accountants goal is to assist you with Tax Minimisation.
Transferring from one personal wallet to another, or from an exchange to a wallet
Does sending the BTC to my personal address flag a “sale”?
moving the coin is not disposal if you control the recipient address.
Tax Free Threshold
If all my gains are still not amounting to more than the tax-free threshold for the year, would I even need to bother doing a tax return?
Transacting with cryptocurrency on behalf of someone else
I’ve purchased and traded cryptocurrency for other people (who funded the purchases) and need to pass the currency back to them at some stage.
I’m hoping to clarify how to transfer ownership so that the currency isn’t considered to be my asset, and the real owner is liable to pay any applicable capital gains tax. As cryptocurrency can be stored almost anonymously I’m concerned that I may have difficulty clearly demonstrating the transfer of cryptocurrency assets leaving a wallet/exchange in my name and going to another person’s. How will you recognize ownership of the currency?
In this situation, you’ll need to be able to provide documentation that demonstrates you purchased the cryptocurrency on someone else’s behalf, at their request and with their money. This is the same whether the property in question is cryptocurrency, company shares or any other asset.
We recommend at least having a written agreement in place.
If you don’t have any such documents that were prepared before or at the time you purchased the cryptocurrency, we suggest you contact our Early Engagement team to discuss your situation, or seek written Advice in a private ruling.
If you can demonstrate that the cryptocurrency was acquired and held for somebody else, transferring the cryptocurrency back to that person (the owner) would not be a CGT event.
Is it possible to curb profits in a company and pay out dividends over a few years in order to reduce tax liability?
Need to understand whether you’re an investor/professional trader first
Yes, although consideration should be given to whether you want to be taxed under company tax rates or individual tax rates once the profits are paid out to beneficiaries
Company is good if you’re an active trader and you want to reinvest your profits
Trust is good for asset protection ie if you don’t want to take the risk of trading in your own name, and you also have more flexibility in distributing profits
This depends on whether this person is classed as an investor, or a trader
As a trader, you can value your portfolio at the end of the financial year based on market value of current “holding stock” to be used in conjunction with a profit & loss statement which determines trading activity over the financial year. In this case, the assessable profit would be reduced to $12k.
”What happens if you sell after June 30? Are the dates almost irrelevant come tax time? And if I am classed as a trader one year, can I then be considered an investor the following year? Dependant on trading activity?”
Again, this comes down to whether you’re a trader or investor
As an investor, the date sold must be before June 30 in order to realise a capital loss to offset against the capital gain within the same financial year
Yes, your classification can change in each financial year
This is still judged on a case-by-case basis
If people don’t do their tax until new regulations or possible law changes come into effect regarding CGT, will the old rules apply for that year or will the new rules cover any tax returns filed retrospectively?
It’s unusual for the ATO to issue retrospective rule, but it’s possible
The rules regarding crypto have already been issued by the ATO
If you’re not a resident of Australia for tax purposes but you bought your crypto from an Aussie exchange are you still liable for CGT if you bought/sold/held during the tax year?
Foreign residents are likely to be subject to tax for any income earned in Australia
Consideration must be given to double-tax between their country of residence and Australia
This should also be judged depending upon a case-by-case basis
Same question for Australian residents with dual citizenships, can they claim CGT under an overseas country’s tax if they aren’t claiming Australian residency for tax purposes while living overseas?
Comes down to which country the person is considered to be a resident for tax purposes
Tests can be conducted to determine residency
Is there an argument to say the ATO’s rules came out too late for anyone to be able to form a direction that we needed to head in terms of trading strategy, or are the crypto to crypto trades applied retrospectively for the entire 2017-18 financial year?
There is not an argument to say the ATO was too slow
Crypto to crypto trades are taxable events. The only exemption is if they were bought with the intention to dispose of for personal use
The below is not tax advice, it is purely my interpretation of the law.
As it currently stands according to the ATO, “Where you exchange one cryptocurrency for another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset.”
This practice has led to a few stories about the following situation
- ‘Person A’ buys ‘Crypto A’ for $100
‘Crypto A’ increases from $100 to $1000
‘Person A’ Trades ‘Crypto A’ for ‘Crypto B’ at a rate of 1:1
‘Financial year 1’ ends
‘Crypto A’ & ‘Crypto B’ decrease from $1000 to $200
‘Person A’ Sells ‘Crypto B’ for $200
‘Person A’ completes a tax return for ‘financial year 1’
‘Person A’ gets audited for not reporting disposal of CGT asset
‘Person A’’s amended assessment includes income for $900 capital gain
‘Person A’ has to pay tax marginal tax rate (for example use 32.5%) on $900 Gain
‘Person A’ has to pay $292.5 tax on $900 Gain
‘Person A’ only has $200 from the sale of ‘Crypto B’
Financial year 2 ends
‘Person A’ is entitled to claim a capital loss of $800
Capital Losses are only able to be deducted against capital gains
$800 capital loss is carried forward to later capital gains
As ridiculous as the above situation seems, that is the way that the letter of the law currently reads, for now.
In the meantime, what can you do if you have traded at the peak?
A possible solution is to re-trade at current level prices BEFORE the financial year ends. this way you are able to use the capital loss to offset the capital gain made during the financial year.
There is a term called “wash sale” which in relation to the share market is selling any shares you currently have a capital loss for and buying back the next day to incur the capital loss which can be used to offset any capital gains you have.
There is a tax ruling on this matter here: http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20087/NAT/ATO/00001
Basically, a summary is that a ‘wash sale’ is caught in the anti-avoidance rules and therefore any relevant capital loss is disregarded. The main reason behind this is because you have re-acquired the exact same (or similar) CGT asset.
So why would it be different for Crypto?
A: If you refer back to the very first line of this post, “Where you exchange one cryptocurrency for another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset.”
Since the two separate crypto’s are seen to be separate CGT assets, a ‘wash sale’ would not be applicable. In the eyes of the ATO, It would be like trading your BHP shares for Telstra shares, completely different assets.
I hope. With no legal assurance. That if you make an honest evaluation of past cgt attracting gains that’s close enough. Not legally. But morally. Then fix it from now. Just my opinion not financial advice.
the ato have really fucked up with the crash in the market there is going to me an unimaginable amount of capital losses.
As a word of warning you should expect that the ATO will employ chain-analysis tools within the next 2-3 years. Once the data matching software matures and exchanges provide tax authorities with trade data of individuals it will be very easy for them to build a picture of what tax liability they will be expecting that you report. This includes running the software for tax periods you have already submitted.
The penalties can be severe but if you have shown a willingness to assess your liability as best as you can, taking positions with reference to your records that will serve greatly in your favour compared to someone who shows wilful disregard to report their crypto liability.