- The ATO has a crypto tax time factsheet available
- Capital gains can be considered in tax returns, likewise capital losses
- Please consult a licensed taxation advisor for more information
#Bitcoin💔 tweeted Elon Musk just a few hours ago.
#Bitcoin 💔 pic.twitter.com/lNnEfMdtJf
— Elon Musk (@elonmusk) June 4, 2021
The onslaught of worried cryptocurrency traders tweeted in a flurry, but what could a shift in crypto values mean for you when tax time comes in less than a month?
The Australian Tax Office recently reminded Australian cryptocurrency holders and investors that crypto is taxable.
Data from the Government agency said that 2020 saw a “dramatic increase in trading”.
It is estimated that there are over 600,000 taxpayers that have invested in crypto-assets in recent years.
Australian Tax Office
ATO said they will be speaking with some 100,000 taxpayers about cryptocurrency assets, and are set to speak with more.
“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.”
Tim Loh, Assistant Commissioner, ATO
What is crypto?
The Property Tribune had this to say about crypto and its implications for real estate.
Cryptocurrency is an application of blockchain technology. The currency itself is virtual or digital, and the currency is secured, stored, and managed by cryptography, hence the name.
Associate Professor at Deakin University’s Department of Finance, Dr Adrian Lee, said that “crypto is on a public ledger, so everyone can see everything. It’s easier to supervise people where they are using Bitcoin.”
Where’s the value?
It’s an overused idiom, but beauty is in the eye of the beholder. Or even, in this case, the holder.
Dr Lee told The Property Tribune that “people buy crypto for many reasons. Part of why it is so expensive is because of the belief people have in it, it is an asset that is not held or controlled by any government, it is independent of any central authority, and people value having that sort of alternative asset.”
It is also limited in supply. There can be no more than 21 million, as once miners have unlocked this number of bitcoins, the supply will be exhausted.
If anything is strictly limited in supply, then its price is determined by demand. If demand goes up, so goes the price. As the price goes up, more people become interested, becoming a self-fulfilling prophecy. The same happens in reverse.
Director of Munro’s, Drew Pflaum, said “People seem to invest into cryptocurrencies for similar reasons that they invest into penny stocks or buy lotto tickets.”
“Essentially people are trying to get rich quick.”
Drew Pflaum, Director of Munro’s
So what about tax?
Many people who get rich quick[ly] perhaps often forget they can also get taxed quick[ly] too, if you’ll excuse the expression.
ATO’s Assistant Commissioner Tim Loh said, “gains from cryptocurrency are similar to gains from other investments, such as shares. Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax (CGT) and must be reported.”
The agency also said “CGT also applies to the disposal of non-fungible tokens (NFTs).”
“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks,”
Tim Loh, Assistant Commissioner, ATO
Elinor Kasapidis, Senior Manager Tax Policy for CPA Australia, told The Property Tribune when calculating tax, you can generally treat it as an asset.
Ms Kasapidis also said that like other assets, if a capital loss is made, that can likewise be considered in tax returns made to the ATO.
The recommendation from both the CPA and Mr Pflaum is to keep meticulous records of transactions in Australian dollars.
Mr Pflaum and Ms Kasapidis both told The Property Tribune that people should remember tax is not just applicable to asset disposals to Australian dollars, it also includes exchanges to other cryptocurrencies.
One misconception people have, Mr Pflaum added, was that “if you have gains of less than $10,000 they are tax-free per the personal use exemption.”
“… the personal use exemption only applies if you have genuinely only bought and used the cryptocurrency for a non-investment purpose (e.g. paying for a VPN from crypto you bought within the last week solely for the purpose of paying for the VPN). If you have held cryptocurrency hoping that it would appreciate in value then the first dollar of gains is subject to tax.”
Drew Pflaum, Director of Munro’s
Wallets, exchanges, forks and splits
Ms Kasapidis from CPA Australia said one way of looking at the difference between a crypto-wallet as compared to crypto sitting on an exchange is the difference between cash in hand, and cash in the bank.
The wallet is like physical cash that sits in the possession of the owner rather than a bank, whereas an exchange maintains custody of the cryptocurrency on the owner’s behalf and enables trading like a stock exchange.
Forks and splits can occur in cryptocurrency and the tax treatment would generally be similar to that of a company demerger.
Discounts please?
The ATO said, “Holding a cryptocurrency for at least 12 months as an investment may mean you are entitled to a CGT discount if you have made a capital gain.”
What if I make a mistake?
Mr Loh from the ATO said, “If you realise you’ve made a mistake and correct your return, we will significantly reduce penalties. However, failing to report on crypto-assets and not taking action when reminded will prompt penalties and potentially an audit.”
The ATO also has a cryptocurrency factsheet available on its website.
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