Over the last few years, the use of crypto-currency in online shopping has largely increased in many countries, including Australia. Crypto-currency, commonly called ‘crypto’, is a digital currency used to purchase services and goods. It is a decentralised digital asset that was first introduced in 2009. Since then, a large number of cryptocurrencies have emerged, and many countries are now looking for ways to regulate them.
A misconception regarding crypto-currency is that taxes do not apply to crypto-currency. The truth is, the Australian Taxation Office (ATO) considers crypto-currency a property and CGT asset for tax purposes. So, if you ask how to avoid crypto taxes, the direct answer will be that you cannot avoid taxes. The only option you can go for is a reduction of taxes, and there are indeed some ways for it. Go through this blog to know those ways.
Like physical currency, tax reduction is also possible on digital currency. But as the system runs in a little different manner, the tax minimising methods are also unique.
First, you should figure out whether you are an investor or a trader because it will help you get some tax concessions.
Many entry-level cryptocurrency users may think of themselves as traders. But, there are fewer chances that the Australian Taxation Office will also consider the same. Rather, the ATO may think that they are investors because they usually lack the net worth, volume, and planning needed to become traders.
If you use cryptocurrency to pay to acquire a few different coins on an exchange such as Swyftx, and a large portion of your profits comes through a long-term holding of assets, the ATO will tax you as an investor. Even if you go for crypto-to-crypto trades, they will not be considered a business if they are not frequent.
All losses and profits that you have to report to the ATO will come under Capital Gains Tax (CGT) laws. However, one of the major benefits of being taxed as an investor is a more favourable tax rate. If you hold a digital coin for over one year as an investor, you will be able to get a 50% discount on your CGT obligations.
Cryptocurrency traders are businesses and individuals that buy and sell digital assets to produce a regular income. While assessing if someone can be categorised as a trader, the ATO will consider several factors, including:
They will check if you are trying to turn a profit.
It will be checked how much and how often you trade.
The ATO will check if the structure of your trade is organised enough to call it a business. Here, they will take factors like business premises, business plan, and records and accounts of trading stock into consideration.
How much capital you have invested in starting the trade will also be analysed.
One thing to note here is that profits made by the traders are not taxed under the Capital Gains Tax. Rather, it is considered assessable income. The applicable tax rate will depend on the specific business threshold.
Keep in mind that even if you are a sole trader, you can still be considered a business.
When you invest in cryptocurrency, some costs can be claimed as deductions in your tax return.
These costs include:
Available capital losses is another option that you can consider to reduce your tax. Capital losses against digital currencies that have significantly reduced in value can be used against capital gains. This way can help you reduce any cryptocurrency capital gains that you have earned in the long term. You can also incorporate brokerage fees when you calculate your taxes. Even if the losses are from previous years, you can use them to offset gains. Sit with your tax accountant and discuss the matter to understand how tax reduction strategies work.
Cryptocurrency is a decentralised digital asset and is still in the beginning phase. But, it does not mean you can avoid activity reporting. Once you make an online transaction using bitcoin, the information will be stored digitally. The blockchains associated with cryptocurrency are highly secure, and the system cannot be hacked, changed, or cheated.
Thus, when you decide not to report your cryptocurrency activity, there will be a risk of hefty penalties and interest charges imposed by the Australian Taxation Office.
Cryptocurrency taxation is still a developing and complicated area that you may find challenging to understand. Fortunately, there are many taxation experts to help you. Thus, you will not need to understand every detail of it, leading to potential penalties.
Several taxation firms in Australian cities may help you find a professional accountant. These experienced individuals stay updated with the latest developments in the cryptocurrency world and thus, can give you industry-specific advice.
Calculating the whole tax on your cryptocurrency activity can be stressful and time-consuming. That is why experts recommend using software that has been developed in the past few years that can automatically calculate it. Some examples include CoinTracking, CoinTracker, Koinly, Swyftx, etc.
If you ask a crypto tax expert how to avoid tax on crypto-currency activity in Australia, they will simply tell you that you can reduce it instead of avoiding it completely. Many modern-day accountants in Australia have become an expert in this field and thus, can give you specialised tax advice, help you with tax planning and implementation strategies. Before you file your crypto-currency tax next year, you may consider consulting them.
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