The Australian Tax Office is paying closer attention to cryptocurrency than ever before.
Recently, the ATO sent more than 400,000 warning letters to Australian cryptocurrency investors who use cryptocurrency exchanges like CoinSpot and Binance. The ATO’s assistant commissioner was even quoted saying, “There isn’t a game of hide and seek. We have got that information and all we are asking people to do is follow the rules.”
Even if you are playing by the rules, navigating the tax code can feel stressful and overwhelming. We put together this Definitive Australian Crypto Tax Guide to make the whole process feel simpler.
Additionally, we sat down with a few Australian crypto tax experts who shared some simple tips for how investors can save money on their tax returns. You’ll find their insights sprinkled throughout this article.
Yes. The ATO considers cryptocurrency a form of property that is subject to both capital gains and income tax.
Capital gains tax occurs when you dispose of your cryptocurrency. This happens when you sell it, trade it for another cryptocurrency, gift it, or use it for a purchase.
Your capital gain is simply the difference between the AUD value of the cryptocurrency at the time you disposed of it minus the AUD value of the cryptocurrency at the time it was acquired.
It’s important to remember that relevant exchange fees and blockchain network fees can be added to your cost basis or subtracted from your gross proceeds. This can reduce your capital gains tax in a disposal event.
Income taxes apply for cryptocurrencies that you have earned — whether that is through a job, mining, staking, or other means. Income tax is charged on the fair market value of the coins you earned at the time you earned them.
If you’ve bought, sold, or held cryptocurrency with an Australian Designated Service Provider (DSP), the ATO likely already has the data on your crypto transactions.
Australian exchanges and wallets abide by Know Your Customer laws. This means the ATO has access to the information you provided when signing up for these services, will be able to identify transactions that you’ve made, and may even send you a warning letter.
The amount of tax you’ll pay on your cryptocurrency income is dependent on your income levels during the current tax year. Here’s a breakdown by income level.
In addition, investors who have held their cryptocurrency for more than 12 months can apply a long-term capital gains discount of 50%.
For more information, check out our guide to Australian crypto tax rates.
If you’ve sold cryptocurrency at a loss, you should report them on your taxes, as these losses can reduce your net capital gain for the year and your overall tax liability.
It’s important to remember that capital losses can not be used to reduce income tax. However, a net capital loss can be used to offset capital gains in future tax years. You should use this to your advantage.
If you’re having trouble finding which one of your cryptocurrencies are currently trading at a loss, CoinLedger can help. The platform can show you all of your biggest tax-saving opportunities at a glance.
Australians who use CoinLedger to identify tax-loss selling opportunities often save thousands of dollars on their taxes.
It’s important to remember that your cryptocurrency will be taxed differently based on whether you are considered to be an investor or a trader. While investors will pay capital gains tax when they dispose of cryptocurrency, traders pay income tax.
Here’s a breakdown of the differences between investors and traders as per the ATO’s guidelines.
Investor: Investors typically buy cryptocurrencies for the long-term and are primarily interested in building up their wealth over time. Most retail crypto investors would likely fall into this category.
Trader: If you’re mining or trading cryptocurrency in what the ATO describes as an “organized, business-like manner”, you may be considered a trader. Here are a few signs that you may fall into this category:
Of course, the lines between what constitutes a “trader” and an “investor” can get fuzzy at times. If you’re not sure which category you fall under, you should consult a tax professional.
While traders are still required to pay capital gains and ordinary income tax, there are some differences in how they are taxed.
Traders are not eligible for the 50% long-term capital gains discount. However, any relevant costs can be deducted as expenses.
In certain scenarios, it is possible to be both a trader and an investor. For example, a businessperson that owns a crypto mining business but also has personal crypto investments would most likely fall into this category.
If you are both an investor and a trader, you will need to report all your transactions as an investor and all your transactions as a trader separately. This means that it's important to keep your trading and investing wallets separate to prevent confusion when it’s time to lodge your tax return.
Let’s go through some of the different scenarios where you trigger a capital gains tax event from your cryptocurrency activity.
If you trade cryptocurrency for Australian dollars or any other fiat currency, this is considered a disposal event. You will incur capital gains or capital losses based on how the price of your asset has changed since you originally received it.
Crypto-to-crypto trades are considered a disposal event. You will incur capital gains or losses based on how the price of the coins you are trading away has changed since you originally received them.
The same rules apply for stablecoin transactions. Despite the fact that they were designed for transactions and not for investments, trading away stablecoin is still considered a disposal event subject to capital gains taxes (however, your ‘capital gain’ will likely be close to zero).
NFTs are taxed similarly to cryptocurrencies.
If you buy an NFT with cryptocurrency, you will incur capital gains or losses. This is considered a disposal event of your coins and taxed accordingly. However, buying an NFT with fiat currency like AUD is not considered a taxable event.
If you sell an NFT, you’ll incur a capital gain or loss based on how much the price of the asset has changed since you originally received it.
Forks can be taxed differently in different scenarios. If the cryptocurrency you earn post-fork has the same rights and relationships as the cryptocurrency you held pre-fork, it is considered a continuation of the original asset and does not trigger a capital gains tax event.
Pro Tip: For this reason, tax experts do not believe that the migration from Ethereum to Ethereum 2.0 will be considered a taxable event.
On the other hand, if you receive a new cryptocurrency with new rights and relationships as a result of the fork, each one of these will be considered new tokens with a cost basis of 0. Thus, you will not incur tax when the fork occurs. However, you will need to pay capital gains tax when you dispose of your new tokens.
For more on how forks/chain splits are taxed, check out the ATO’s guidance on this issue.
Did you send or receive a cryptocurrency gift sometime this year? Let’s break down how gifts are taxed for both senders and receivers.
In Australia, gifting cryptocurrency is considered a taxable event. You will incur a capital gain or loss based on how the price of your coins has changed since you originally received them.
On the other hand, receiving cryptocurrency as a gift is not considered a taxable event. You will only need to pay taxes once you dispose of the cryptocurrency you were gifted. That makes it important to keep track of the fair market value of your gift at the time of receipt so you can calculate your capital gains/losses upon disposal.
If you are mining cryptocurrency as a hobby, your mined coins are considered a new asset with a cost basis of $0. When you dispose of it, you incur a capital gains tax event.
There is likely no taxable activity when you borrow cryptocurrency or make a repayment on a loan. You will, however, incur capital gains or losses when you dispose of any borrowed crypto assets.
Transferring your cryptocurrency to another wallet that you own is not considered a taxable event. However, you should keep a record of these transfers so that you’ll be able to calculate your taxes in the case of a future disposal.
In addition, you will need to pay taxes on any fees you paid to transfer your cryptocurrency. Spending cryptocurrency on transfer fees is considered a disposal subject to capital gains tax.
As discussed earlier, ordinary income is taxed differently from capital gains. Here are a few common scenarios where investors earn income in the form of cryptocurrency:
If you’re receiving cryptocurrency as payment for your work, you will need to pay income tax based on the fair market value of your coins on the date you received them.
If you are mining cryptocurrencies as a business (not as a hobby), you recognize income equal to the fair market value in AUD of the cryptocurrencies at the time you receive them.
If you have sold an NFT that you have minted, the proceeds of the sale will be considered ordinary income. Any revenue you receive from secondary sales will also be considered ordinary income.
The ATO has stated that cryptocurrency earned from staking and other forms of earned interest on your cryptocurrency is subject to income tax based on its fair market value at the time of receipt.
Tokens earned through airdrop are considered ordinary income based on their fair market value at the time of receipt.
Many popular crypto applications offer referral bonuses for new users. These bonuses are considered ordinary income based on the fair market value of the coins at the time of receipt and are taxed accordingly.
It’s necessary to report and file taxes on your crypto income and capital gains. Still, there are opportunities for crypto investors to reduce their tax burden.
Let’s go through some of the most common crypto-related deductions that you can claim on your tax return.
If you have recorded a loss on a cryptocurrency sale, you can claim this as a capital loss to offset any capital gain that you have for the year. If you end up with a net capital loss for the year, you can roll this over to the next year to offset future capital gains.
If you’re an investor that’s held your cryptocurrency for more than 12 months, you may be eligible for a discount up to 50% on your capital gains tax payment.
It’s important to remember that this discount is available for investors, but not available for traders.
If you’re not sure how long you’ve held your cryptocurrency, you can import your transaction history into CoinLedger to easily see the exact dates you’ve bought and sold your coins.
Gas fees and transaction fees on cryptocurrency trades can be added to your cost basis. This can help reduce your tax burden in the event that you pay capital gains tax.
Donating cryptocurrency is not considered a taxable event. You will be able to deduct the value of your cryptocurrency based on its fair market value in Australian dollars at the time of the donation.
The Australian tax code does have an exemption for items bought for personal use. If you buy less than $10,000 worth of cryptocurrency for the purpose of buying a personal use good, you may be eligible for this exemption.
Of course, not every cryptocurrency purchase is subject to the personal asset use exemption. According to the ATO, the personal asset use exemption cannot be claimed if the purchase was originally made for investment purposes.
Remember, the longer you hold your cryptocurrency, the less likely it is to fall under this exemption category.
It’s important to be careful when claiming this exemption. In the case of an ATO investigation, the burden of proof is on you to prove that you purchased the cryptocurrency for personal use.
If you’ve lost cryptocurrency assets as a result of a hack or a theft in the past tax year, you may be able to claim a capital loss and reduce your total tax liability. Of course, the ATO requires proof that your cryptocurrency has really been lost and cannot be replaced. Here’s the evidence they require, as stated directly on the ATO’s website:
If you’re running a business that involves trading or mining cryptocurrency, you can write off related expenses. This might include the cost of electricity and necessary software and hardware.
To claim this deduction, you will need an Australian Business Number (ABN). That means you will fall into the trader category and will not be eligible for the long-term capital gains discount available to investors.
Decentralized finance is a rapidly evolving space and the ATO is yet to release specific guidelines for interacting with these protocols.
Still, it’s likely that transactions that happen on DeFi protocols will follow the same rules as other taxable cryptocurrency events. That means we can reasonably assume the following:
If you own a business that accepts cryptocurrency for payment, you will need to keep track of the market value of your crypto at the time you receive it. You will then report this as part of your business income.
Not sure how to lodge your crypto taxes? Here’s what you can doto get started.
Remember, the ATO requires you to keep records of crypto transactions for at least 5 years after you prepared/acquired your records or 5 years after you completed your transactions (whichever comes later).
Once you’ve collected the relevant information, you have three different options for lodging your crypto taxes
You can test out CoinLedger and import all of your cryptocurrency transaction history completely for free here. No personal information or credit card required! You only need to pay when you want to download your forms.
Once you have calculated your gain/loss from each transaction, add up all of your gains and losses to arrive at your net capital gain or loss for the full tax year. Report this net capital gain under section 18 of the Australian tax forms.
Cryptocurrency income should be reported on Question 2 of the Australian tax forms. It’s on this form that you report earnings that were not salary or wages subject to standard withholdings, such as tips and other income.
If you’re lodging your taxes for the financial year of July 1, 2021 – June 30, 2022 by yourself, it needs to be submitted by October 31, 2022.
Australians who lodge their tax return with an accountant have slightly more time. This deadline varies depending on your specific circumstances but can be as late as May 15, 2023.
Not paying your taxes on time can be expensive. The ATO may apply a “failure to lodge on time” (FLT) penalty. The longer it takes for you to lodge your tax return past the deadline, the higher this tax penalty will become.
Here’s a breakdown of how large this penalty can grow:
If you have a circumstance that caused you to file your taxes after the deadline, you can make a request to remit the penalty. According to the ATO, taxpayers with a history of complying with tax law are treated more leniently.
In the case of a sudden downturn, some cryptocurrency enthusiasts find themselves in the unfortunate situation of not being able to afford the taxes on their capital gains and income.
If you find yourself in this situation, you can still pay your taxes while staying compliant with Australian tax law. Individuals and businesses that owe less than $100,000 in taxes can set up a payment plan with the ATO and pay off their tax bill in installments.
Calculating your crypto gains and losses can be tricky if you’ve made several purchases at different times. Consider the question below:
The answer is dependent on what accounting method James chooses to use: FIFO (first-in, first-out), LIFO (last-in first-out), or HIFO (highest-in, first-out). Each one of these methods present different benefits. For more information, check out our guide to FIFO, LIFO, and HIFO.
What method you’re allowed to use depends on whether you’re classified as an investor or a trader. If you’re an investor, all three of these methods are allowed as long as you’re able to individually identify your cryptocurrency assets. However, traders can only use FIFO.
You can read the ATO’s guidance on this issue here.
Looking for a simple way to lodge your tax return? Here’s how you can manage the entire process by using CoinLedger.
Step 1: Connect your CoinLedger account to your exchanges and wallets.
Step 2: Watch the platform calculate your gains, losses, and income!
Step 3: Click the View Report button to download your gains, losses, and income tax reports in AUD.
Step 1: Connect your CoinLedger account to your exchanges and wallets.
Step 2: CoinLedger will automatically alert you to any missing/incomplete information on your tax report.
Step 3: Click the View Report button to download your gains, losses, and income tax reports in AUD.
Step 4: Once your report is generated, send them to your accountant OR upload them directly via MyTax.
Looking for an easy way to lodge your taxes? Try CoinLedger, the crypto tax software for Australia trusted by thousands of investors.
You can use the software to import your historical cryptocurrency transactions and get a preview of your capital gain and losses from the year completely for free. You’ll only need to pay when you want to download your tax reports. Watch the explainer video below to learn more about how CoinLedger works.
Let’s cap things off by answering a few frequently asked questions about crypto taxes in Australia.