Has the bitcoin bubble burst? It’s a question many economists and crypto investors are asking and in the absence of a crystal ball it is perhaps a difficult one to know the answer to.
What is known however is the complexity surrounding the taxation of crypto assets. This is in part due to the ever-evolving number of crypto assets that exist and the varying attributes each have as well as the different types of transactions that can lead to their derivation or disposal.
With this in mind, what are the key facts you should know about the taxation of crypto assets in Australia?
1. Tax is payable on profits from the disposal of crypto assets
Profits arising from the disposal of crypto assets by Australian residents, such as cryptocurrency or non-fungible tokens (NFTs) will be subject to tax in Australia. A disposal can include a sale, swap, transfer between exchanges, conversion to fiat currency (eg USD), a gift or exchange for goods or services.
2. Your tax liability will depend on why you acquired the asset, how you held it and why you disposed of it
The default position is that crypto assets are capital gains tax (CGT) assets and certain CGT concessions or exemptions may apply to reduce a CGT liability on their disposal. This includes a 50% discount for assets held longer than 12 months and in limited circumstances a full exemption for personal use asset. Conversely, if you carry on a business of trading in crypto assets or enter into a profit-making transaction then profits would instead be assessed as income and access to the CGT concessions would not be available.
3. Tax may also be payable when you receive crypto assets
The purchase of crypto assets is not a taxing point. However, in certain circumstances the receipt of crypto assets may be subject to tax. For example, if you receive payment for services/wages in crypto assets, if you derive the assets as a result of mining activities or if you receive the assets via an Airdrop.
4. The ATO knows about your crypto transactions!
The ATO has the ability to track crypto transactions and is currently undertaking a mass data matching program. Australian exchanges (referred to as designated service providers or DSPs) are required to provide significant data to ASIC and the ATO about their customers. This enables the ATO to identify high risk taxpayers who may not have disclosed their assessable income or gains.
5. Losses can be offset against gains – if they have been realised
Crypto losses can offset gains therefore lowering your potential tax bill. However, for capital losses they can only be offset against capital gains. Revenue losses can be offset against both capital and revenue gains. Importantly however your losses must be realised. For example, in March 2023 you acquired 1 Bitcoin for $63,150. In March 2024 that Bitcoin is worth at $40,600. Despite a decrease in value, you have not realised a loss until the Bitcoin is sold or otherwise disposed of. If sold the loss of $22,500 would be able to offset against any other realised gains or earnings subject to the nature of your holding and whether it is on a capital or revenue account.
Ensuring the correct tax position is taken in respect of your crypto transactions is critical to avoid penalties being imposed by the Federal Commissioner of Taxation on audit.
If you have questions about your tax position, please contact our Tax & Structuring team.
This is an article in our Blockchain Byte series by KHQ’s Tax & Structuring team. The series provides ‘byte-sized’ articles outlining key tax and structuring associated crypto assets as well as updates in the Blockchain space which regularly occur. To register for the latest byte and other tax and structuring news, click here to subscribe.
