Cryptocurrencies are alternative currencies that are a widely popular investment as well all over the world. According to Wikipedia, Bitcoin is currently the largest blockchain network, followed by Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS.
If you are currently involved in buying, trading, or selling cryptocurrency such as Bitcoin, here are some important income tax implications from the ATO that you need to know.
The ATO’s view on cryptocurrency
The Australian Taxation Office (ATO) sees cryptocurrency as asset class like real estate or share, not currency. Therefore, cryptocurrency transactions may be liable for capital gains tax (CGT).
When you sell, trade, purchase or convert Bitcoin to money, a CGT event occurs. Consequently, some or all of your capital gain may be taxed by the ATO. If you own a few cryptocurrencies other than Bitcoin, each cryptocurrency will be treated as a separate CGT asset.
If your business is in selling cryptocurrency, you may be able to claim any profit that you make as ordinary income and not as a capital gain. Some of the ATO’s considerations when determining a business are: you have a business plan and are acting in accordance with that plan, you have a business name, you have accounting records, and your intention to make a profit.
Investing in Cryptocurrency
If you’re an investor and are considering selling your investments, you may have to pay tax on any capital gain that you make. However, you may be eligible for the 50% discount CGT discount if you’ve had your digital asset for more than 12 months before selling or using it.
If selling your cryptocurrency results in a net capital loss for you, you can use that to reduce taxes on a capital gain that you make in a later year. You cannot deduct a net capital loss directly from your income.
To figure out whether you’ve made a capital gain or loss on each sale, it’s important that you note down all your cryptocurrency transactions. Chan & Naylor tax accountants can help you manage your books so that you can get the most out of every sale.
Personal use asset
The personal use asset is a tax exemption that applies to cryptocurrencies that are worth less than $10,000 and are used for personal use or consumption. However, according to the ATO, the longer you keep your cryptocurrency, the less likely it will be seen as a personal use asset.
For example, you saw a promotion where you could purchase furniture at a discounted price if you pay in Satoshi (the smallest unit of bitcoin). So you purchase Satoshi to take advantage of the promo. The ATO will consider this as a personal use asset.
However, if you’ve already had your Satoshi for a few months with the intent of selling at a higher rate sometime in the near future, but decided to spend some for that promotion, the ATO will consider you as an investor and your purchase cannot be classified as a personal use asset.
These are just some of the important income tax implications that you need to know when buying, trading, or selling cryptocurrency like Bitcoin. If you need more assistance with understanding the tax implications of cryptocurrency, contact our friendly tax accounting experts here and we will be more than happy to help.
Aside from cryptocurrency tax, have a look at our other accounting and advisory services that we do to help you achieve greater success.
Chan & Naylor Group has nationwide offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with your cryptocurrency tax compliance as well as any other business or personal tax enquiry that you may have. Contact us today.
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