With tax season fast approaching (it’s June 30) and cryptocurrency holders grimacing at the recent crash of major coins, Australians new to crypto may be wondering how much taxes they will have to pay – if they were lucky enough to make a profit, that is.
“There is a common misconception that cryptocurrency is ‘untraceable’ or ‘flying under the radar’ of authorities,” says Bill Tsouvalas, Founder and Editor-in-Chief of Australian financial institution, Savvy. “In theory this is correct – but the continued integration into the wider financial system means that crypto exchanges have been placed under greater government oversight and regulation, and Australia is no exception. “
So, the question is: do you need to pay tax on crypto gains? Tsouvalas answers this and other questions below. Also, for the official word on the crypto tax, be sure to check out the ATO website.
Do I have to pay cryptocurrency tax in Australia?
“Do you buy with bitcoins? Trading Ethereum? Throw Doge coins a bone? If so, you might be wondering if the government is watching your back, rubbing its hands and waiting to come and take its cut.
“According to a recent study, 17.3% of Australians already owned some form of cryptocurrency. With so many exchanges buying, selling, staking, forging (uh) and airdropping (we swear we’re not making those words up) crypto, the crusty old ATO must be salivating at the thought of putting its sweaty digital hands on this digital currency.
“So, do you have to pay cryptocurrency tax in Australia? The short answer? Yes.
“The longest and most detailed answer? Cryptocurrency will be taxed when traded, spent, or given as a gift to someone else. However, it will not be taxed if you use it expressly for personal purchases or donations.
Wait, I thought cryptocurrency was anonymous?
“When it comes to two independent addresses or wallets exchanging currencies back and forth, unless you know the actual identity of the wallet holder, it’s for all intents and purposes anonymous.
“However, crypto exchanges that operate in Australia, known as Designated Service Providers or DSPs, are required to collect customer information, just like a bank or lender. It is a requirement for doing business under the various regulators.
“If you’ve ever used a DSP – like Coinbase, Binance, Crypto.com or Swyftx – the ATO already knows how much you hold, who you send it to, etc. They’ve known that since 2014.
“The ATO has already sent threatening letters to crypto holders – and if you don’t have one yet, chances are you will.”
Ugh, well – So how much do I owe?
“For individual holders or traders, you will be taxed according to the Capital gains tax schedule in Australia. The CGT is calculated using the income tax schedule. It does not include the 2% Medicare levy.
Of course, this is the tax we’re talking about, so it’s actually a lot more complicated.
How do I calculate the tax on my crypto?
“To calculate the tax on your crypto, you will need to calculate your pre-tax cost basis for the crypto. This means how much it costs to acquire and hold the crypto.
“So if you bought $20,000 worth of crypto and paid a fee of $200, your cost base is $20,200.
“Let’s say your crypto earns another $20,000 and your entire wallet is worth $40,000. To cash out your entire wallet, a fee of $400 is charged. So your cost base is 20,600 $.
“The gain is the total amount you have ($40,000) minus the base cost ($20,600), which means you have made a gain of $19,400.
“If you hold your crypto for at least a year before disposing of it, you get a 50% tax reduction – so only $9,700 would be taxed. In this scenario, you would pay no tax because it is below the tax exemption threshold.
“As for your impulsive self above, you’ll have to pay 19% for every dollar above $18,200, which means you owe the tax office $228.”
When do I not have to pay crypto tax?
“When you use crypto to pay for personal purchases or donations. It means converting your regular money to crypto, because your favorite online retailer that sells S-Rank Gunpla only takes Dogecoins. For some reason.”
What if I am a business?
“If you are a business and your primary activity is crypto trading, cryptocurrency transactions are taxed using rules on commercial actionsnot capital gains tax rules.
“If your business uses crypto as payment, you will need to report crypto as ordinary Australian dollar income on your business records.”
How can I keep up to date with all this tax stuff?
“Unless you’re some kind of egghead, the same way most of us are: using some kind of tax calculator or accounting software.
“Crypto.com Tax, CoinTracker, Koinly, Taxbit and many more can connect to your wallets and help you calculate your crypto tax obligations – some of them using real-time crypto at AUD prices. This can make tax time much, much easier.
Should I buy cryptos?
“It’s up to you. With crypto still being quite volatile (Bitcoin lost around 20% of its value in May 2022), you could make a lot of money – or lose the shirt off your back. As with everything which is financial, it is best to talk to a professional first before investing in anything.
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