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Paying Tax on Crypto: Tax Guide for Crypto Investments in Australia

Even though crypto-currency is a relatively new thing in the business world, it is subject to tax obligations. If you are new to this currency, you should first understand which taxes apply to crypto. Then you can use any tax calculator to estimate how much you have to pay before paying tax on crypto.

Generally, for crypto assets, both income and capital gains taxes need to be paid. The Australian Tax Office (ATO) has set guidelines on how crypto is taxed. This guide will provide the information you need to know about taxes on crypto assets.

How Does The ATO Classify Crypto?

You should first note that the ATO does not see cryptocurrency as any fiat currency like Australian Dollars. Instead, cryptocurrency is treated as property on which tax is applied. The market value of the crypto-currency is calculated in the Australian Dollar.

You Should First Understand Whether You Are An Investor Or A Trader

To know your crypto tax obligations, you should first see whether you are an investor or a trader. Investors are usually subject to CGT or capital gains tax, while traders earn from a profit-making activity or a business.

  • If you use cryptocurrency as a personal investment, and the significant earnings come from long-term gains, you can fall under the investor category. For this reason, losses and gains on cryptocurrency are subject to CGT.

On the other hand, crypto trader tax is applicable for people who operate businesses, including cryptocurrency. If you want to be categorised as a trader, you will be required to assess your circumstances and facts and consider how the ATO can view this activity. Meeting the following requirements will make you fall under the trader category.

  • Your activities should be for commercial purposes.
  • You have to do things that are primarily done in a business-like structure. These activities will include drafting business plans, acquiring inventory or capital assets according to plans, etc.
  • You should also prepare accounting records and carry out marketing programs for your business.

What Are The Different Types Of Capital Gains Events Applicable For Cryptocurrency?

We already mentioned that the ATO classifies the cryptocurrency as a capital gains tax asset, which is similar to a company share. That is why it is crucial to assess the CGT each time you sell, trade, or gift your crypto assets. The different types of capital gains events are discussed here.

Capital gains

If you are the owner of any asset type and generate profit from selling or trading it, you will be required to pay tax on the capital gain made.

12-month CGT discount

If someone holds a specific type of asset for over 12 months, a 50% discount will be applicable on the CGT. Individual taxpayers receive this 50% discount, while compliant super funds receive about 33.3%.

Capital losses

If the value of your cryptocurrency asset decreases from what it was at the time of purchasing it, it will be called a capital loss. For example, if the purchasing price for 1 Ethereum is $1000 and you manage to sell it for $500 a few months later, the capital loss will be $500. You can use this capital loss to offset capital gains.

What Information Does The Australian Taxation Office Gather For Cryptocurrency Tax?

If you think the ATO does not know about your cryptocurrency because you have not exchanged it for fiat currency, you will be wrong. The ATO gathers information from designated service providers like payment facilitators, cryptocurrency exchanges, brokerage services, etc. The information includes the following.

  • Name, date of birth, address, Australian Business Number, and contact details of the investor or trader
  • Transaction and account details like linked bank accounts, cryptocurrency types, the status of bank accounts, amounts in crypto and fiat currencies, etc

When Does The CGT Apply To Your Assets?

If you are confused about the specific time of paying taxes on crypto, you should go through this section. In the following events, you have to pay your CGT.

  • If you trade in the typical form of disposing of one cryptocurrency for another, CGT will apply.
  • Converting cryptocurrency to any fiat currency like the Australian Dollar will also be subject to paying CGT.
  • You will need to pay CGT if you purchase any product using your cryptocurrency.
  • CGT is also applicable if you sell or gift cryptocurrency.

However, if you only purchase items using cryptocurrency for personal purposes, you may be exempt from paying tax under personal use asset exemption. But for that, you have to prove that you are not using it for any business activities.

When Does Income Tax Become Applicable, And How Should You Calculate It?

If your business receives crypto-currency as your primary source of income, you will be required to pay income tax. Market value is applied to the crypto-currency on the day you receive it, and from that, the total income is calculated.

If you declare that you are receiving crypto-currency as ordinary income, you can claim for deductions. These deductions include expenses incurred while purchasing business items or services with crypto-currency throughout the entire financial year.

How Much Tax Will You Have To Pay On Crypto-currency Income?

Your payable tax on cryptocurrency will be affected by the total income you earn in the financial year. If your annual income is under $18200, you will not be required to pay the tax. 19% rate applies to income that falls in the range of $18201 and $45000. If your income threshold falls in the field of $45001 and $120000, the tax rate will be 32.5%. Income thresholds in the range of $120001-$180000 and above $180000 will be subject to 37% and 45% tax rates, respectively.

Final Words

You must consult a tax adviser for professional advice on cryptocurrency tax, how to file tax deductions, or what documents you should keep for taxation purposes. Australian taxation is indeed complicated to understand, and cryptocurrency is also not something everyone can know. So, it will be better to go to professionals from Palladium, who have in-depth knowledge of crypto and its tax obligations.

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