If you’re riding the emotional rollercoaster that is cryptocurrency, then at some point, we should talk about how crypto affects your (Australian) tax return: whether you daytrade, hodl, or are just a tourist. We’ll try to bust some urban myths about crypto and your taxes, and give you some direction on what you need to do.
Let’s start at the beginning. For most people, the ATO will consider your crypto to be an asset purchased for investment. Basically no different to any other investment like shares, which are taxable when you buy and sell them for a profit, so at some point you need to think about how your crypto adventures will affect your tax return.
However, there are quite a lot of misconceptions around, which have led some people to believe that crypto gains aren’t taxable. We’ll do our best to address those and bust some of those myths and misconceptions in this article. In Part 2, we’ll deep-dive into what you need to do in your tax return.
Misconception #1: “There’s no tax if I don’t hold more than $10,000, right?”
We can see where this one comes from….ATO doesn’t tax profits made from “personal use assets under $10,000”, and this is stated plain as day on the ATO website.
But this is meant to apply to things for your own use and pleasure, like a collectible. So when you sold that DVD box set of The Fresh Prince of Bel Air on eBay for $1000, the gains aren’t taxable. But it isn’t the same as crypto that you bought as an investment.
Misconception #2: “If I use crypto to buy personal items, the crypto gains are not taxable?”
Yes, the ATO actually does have a webpage which says this. But many people aren’t getting it in the right context.
What the ATO means is that if you use your crypto wallet purely like a Paypal to buy and sell personal things, then any gains aren’t taxable. But the problem is that the great majority of people are investing in crypto in a way that’s not consistent with using it purely as a digital wallet for purchases. If you hold a balance that’s far in excess of what you spend (for far longer than you need to), or if you swap between coins, then you’re really in it for investment and you’re not really using your crypto just for buying and selling personal things.
Misconception #3: “I don’t get taxed until I convert my crypto back into Aussie dollars?”
The ATO is quite clear on this one; each trade is considered a separate taxing event for CGT. That means that if you say, sell BTC to buy into NEM when it dipped, then any gain from that trade is taxable, and it doesn’t matter that you just swapped one coin for another, and haven’t yet cashed out.
And that brings us to the end of Part 1: most people trading in crypto will have to factor in their gains and losses into their Aussie tax. In Part 2, we’ll address where you go from here, and how to approach your tax return.