How to declare crypto tax in Australia

As more Australians purchase crypto assets, such as Bitcoin and Ethereum, it’s important to remember to be tax compliant. Crypto tax in Australia may seem confusing, but as part of regulatory framework, the Australian Taxation Office (ATO) receives data from all Australian-operating exchanges. This means, if you’ve purchased crypto, it’s highly likely the ATO already has your transactional data.

Whether you’ve made a profit or a loss from crypto, or you’ve exchanged currencies or sold some coins, there will be plenty to think about at tax time. While Australian crypto tax is not usually charged at the time you mined coins (if you’ve paid for them with a fiat currency and are an individual investor), as soon as you sell, swap, spend or gift your holdings the rules change.

In this guide we explore:

• Whether you have to pay tax on crypto in Australia
• How to declare cryptocurrency taxes Australia
• How crypto capital gains tax operates in Australia
• How to avoid tax on cryptocurrency Australia, and more.

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Do you have to pay taxes on crypto?

Do you pay tax on cryptocurrency in Australia? The short answer is most likely. You must pay tax on crypto in Australia if you sell, trade, spend or gift your coins. It’s important to note that the ATO classes crypto as an asset, like property. This means it largely falls into the remit of Capital Gains Tax.

The Australian Taxation Office (ATO) is honing in on capital gains from cryptocurrency assets again this year. Capital gains and losses need to be reported each time a digital asset is sold, including non fungible tokens (NFT).

Crypto is taxed when it’s sold, spent, swapped or gifted. There are a couple of instances when you can make tax free crypto transactions. Firstly, you can purchase up to $10,000 in crypto solely for personal use, which makes you eligible for a CGT exemption. Secondly, donations to registered charities are tax free and tax deductible.

Whether you pay Income Tax or Capital Gains Tax on your cryptocurrency will largely depend on two main factors:

1. Whether you’re an individual investor or you’re making a regular income as a trader or business
2. The type of transactions you make.

For example, when you swap crypto for crypto, you need to pay Capital Gains Tax. On the other hand, if you receive an airdrop, you need to pay income tax.

The ATO outlines the latest guidelines for cryptocurrency transactions and which tax you will need to pay for them. You will also have to pay income tax on other crypto products, including staking and yield farming.

While it’s hard to avoid paying tax on cryptocurrency all together, there are strategic ways you can leverage your position to pay less tax, which we will discuss.

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The difference between a crypto investor and trader

It’s important to know that when you’re dabbling in crypto there is a difference between an individual investor and a trader for tax purposes.

An investor, or hobby miner, is seen as an individual who purchases Bitcoin or other cryptocurrency for the main purpose of building wealth over time and profiting from long-term capital gains. Generally, profits made will be subject to Capital Gains Tax, and in some cases Income Tax may apply.

A trader is running a cryptocurrency business to regularly make income through buying and selling for short term gains. A trader will leverage the rising and falling markets to outperform the buy and hold method. The profits from these business activities will be taxed as income.

Australian crypto tax: How much do you have to pay?

It’s necessary to pay Capital Gains Tax and Income Tax on a crypto investment if you’ve traded, sold or earned cryptocurrency in the financial year. The Capital Gains Tax percentage you need to pay is the same amount as your Income Tax rate for earnings over the tax free threshold of $18,200.

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How does crypto Capital Gains Tax work in Australia?

As the ATO views crypto assets in the same light as property, rather than as money or foreign currency, you’re obligated to pay Capital Gains Tax on your investment when you dispose of the crypto.

Disposing of your crypto is not limited to just selling. You will need to pay Capital Gains Tax on crypto in Australia when you:

1. Sell crypto for fiat currency
2. Trade crypto for crypto
3. Spend crypto on goods and services (when exempt from being a personal use asset)
4. Gift crypto

However, capital losses are deductible against your capital gains, and any losses you’ve had on your investment can be deducted from other gains you might have had.

To calculate whether you’ve made a gain or a loss, you’ll need to establish your cost basis. The amount paid to acquire crypto, including any fees, is the cost basis. Then you can simply subtract the cost basis from your sale price (or value at disposal) to work out your capital gain or loss.

When you hold your crypto for a minimum of a year as an individual investor, you’re eligible for a 50% Capital Gains Tax exemption. However, when operating as a trader or business entity, you won’t be entitled to the Capital Gains Tax discount and need to pay 30% tax on your net capital gains.

For individual tax returns, the rate is the same as your income tax rate, depending on your personal financial situation and investments for the financial year. Discussing the tax rules with a registered tax agent will help you understand how to be compliant with your crypto assets.

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How does Income Tax on cryptocurrency work?

Even for individual investors, there are factors that could mean you need to pay income tax on crypto. Here are five reasons you have to pay tax:

1. Salary paid in crypto
2. Received airdrops
3. Staking rewards
4. Got a referral bonus
5. Made DeFi interest

There are other ways you might make income from crypto that will make you subject to paying income tax. It’s important to be cautious with your crypto assets if you want to remain an individual investor. Speak to a tax agent for more information.

Can ATO track crypto?

The ATO can track crypto through a data matching program implemented as part of their regulatory framework with Australian exchanges. The ATO most likely has your transaction data already through your Australian cryptocurrency designated service provider (DSPs) account.

They’ve had the ability to track crypto transaction data since 2014, and receive your “know your customer” (KYC) information that you provide when registering for an Australian wallet or exchange.

In the last few years, many Aussies that invested in crypto have received warning letters from the ATO to inform them they must be tax compliant with crypto taxes. Failure to declare can result in tax evasion penalties. In 2021, the letter outlined that recipients had just 28 days to disclose their crypto activity.

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How to declare cryptocurrency taxes Australia

To declare tax on cryptocurrency, you’ll need to provide the ATO with the following:

• Cryptocurrency transactions dates
• The cryptocurrency value in Australian dollars at the time of transaction (you can find this on an online exchange)
• Details of what the transaction was for and who it was purchased from (a cryptocurrency address will suffice).

You will also need to keep track of all your records, such as:

• Purchase receipts or transfer of cryptocurrency
• Accountant and legal cost records
• Digital wallet records
• Exchange records
• Costs related to software used for managing tax affairs.

An online crypto tax calculator can help you find your profit or loss for the financial year to work out your tax liabilities.

How to avoid tax on cryptocurrency Australia

Here are some circumstances when you won’t need to pay tax on crypto in Australia:

• Buying crypto with fiat currency
• Holding crypto
• Receiving crypto as a gift
• Hobby mining
• Transferring crypto between your wallets
• Making purchases under the guidelines of the personal use asset exemption
• Making crypto charity donations to a DGR.

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Hobby mining

In Australia, hobby mining is tax free upon receipt. This means you won’t be liable for income tax on those mined coins when you purchase them. However, as soon as you spend, sell, trade or gift them you will need to pay Capital Gains Tax.

If you’re mining coins as a business, the rules are a bit different. For those mining as traders, it’s essential to pay Income Tax upon receipt, as well as Capital Gains Tax when you dispose cryptocurrency.

Deductions

Although mining as a trader means you have to pay income tax on your coins, you can claim deductions on your mining expenses when doing your business tax return. When you deduct crypto mining expenses, you can include electricity and rig costs in your claim.

Personal use asset exemptions

If you can prove that the bitcoin you purchased was for personal use, you may be able to receive the personal use asset exemption, as long as the amount is under $10,000. For instance, if you bought crypto simply to purchase personal goods and services from an online retailer that sells with crypto, such as booking travel or buying subscriptions or household goods, then you may receive the exemption for personal use.

If you spend your crypto on items for business or an investment, or spend over $10,000, then you won’t be eligible for the personal use assets exemption.

Also remember, you won’t pay Income Tax on your crypto assets unless your total income for the year is above the tax free threshold of $18,200.

What happens if you don’t declare crypto tax?

If the ATO determines that you have intentionally failed to declare your crypto capital gains, you may incur a penalty of 75 per cent of the tax liability. On top of this, you will need to pay the outstanding tax plus interest on the shortfall.

If you’re unsure of the tax implication of holding crypto, speak to a professional tax agent.

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