As the financial year draws to a close, individuals who have made crypto donations may be curious about the tax deductibility of their contributions. The good news is that the Australian Taxation Office (ATO) recognises gifting or donating a crypto asset to a Deductible Gift Recipient (DGR) as an allowable deduction. However, it is crucial for taxpayers to understand the relevant conditions required to access this deduction.
In this article, we will outline these conditions.
What can you claim?
In Australia, crypto assets such as cryptocurrencies or non-fungible tokens (NFTs) are considered property for tax purposes. Unlike gifts of money, which can be claimed as deductions if donations exceed $2, different rules apply to gifts of property. To qualify for a deduction, the crypto asset must meet one of the following conditions:
- The asset was purchased within 12 months prior to making the donation, regardless of its value.
- The asset is valued by the ATO at more than $5,000.
For taxpayers wishing to donate less than $5,000 in assets which were acquired over 12 months ago, it is advisable to convert the asset into Australian dollars and donate the equivalent amount. If the converted value is over $2, the donation will be eligible for a deduction. However, it’s important to note that the conversion of the crypto asset to fiat currency and subsequently to AUD will likely have tax implications. Direct donations or assets, therefore, tend to be more efficient.
Donations must be made to a DGR
The fundamental aspect leading to the deductibility of donations is that they must be made to DGRs or endorsed charities. Donations made to social media or crowdfunding platforms will not qualify for a deduction unless the recipient of the donation has DGR status. To verify an organisation’s status, you can search for its name or Australian Business Number (ABN) on the Australian Business Register (ABR). For instance, a search of UNICEF Limited demonstrates its DGR status (as of the date of this article), making donations to it tax deductible if they meet the above noted requirements.
DGR must be able to accept donations
As the popularity of cryptocurrencies continues to rise, so does their utilisation in charitable giving. Many organisations including Variety accept donations of crypto and use websites like The Giving Block to facilitate donations from Australians.
Calculating your deduction
Complexities arise in the crypto space due to price volatility of some assets and limited valuation expertise. It’s important to note that taking offer prices is not necessarily an accurate indication of the asset’s value. For example, Wrapped CryptoPunk W#1043 has recently received a significant variety of offers on Opensea.
To determine the deduction you can claim, you must convert the value of the crypto asset at the time of the donation into Australian dollars. If you estimate that the valuation will be greater than $5,000, it will be necessary to obtain a valuation from the ATO. Taxpayers donating assets acquired within the last 12 months may consider using the purchase value but should objectively assess whether that amount may be inflated.
What can’t you claim?
There are several exceptions to what can be deducted. Most notably it is essential to that any donations from which you receive a personal benefit cannot be deducted. For instance, payments made for raffle tickets are not eligible for deductions.
Keep detailed records
Taxpayers are required to maintain records relating to their tax affairs that sufficiently detail and document transactions. In the event of an audit, these records will likely need to be presented to the ATO. To substantiate the value of donated crypto assets, you should keep detailed records which may include:
- the date you acquired the crypto asset and relevant exchange details (if one was used);
- the value of the asset (in AUD) at the date of purchase and subsequent donation;
- transaction receipts or wallet or exchange statements showing the transfer are helpful in demonstrating you incurred the cost and owned the asset donated;
- receipts from DGRs which clearly states their name, ABN (if they have one) and the details of the gift; and
- any other documents that demonstrate both your ownership and your donation.
We recommend utilising a spreadsheet including the date of the donation, summary of transaction (eg donated 1 BTC to UNICEF) and the market value of the token on that date (eg 1 BTC = $40,000 AUD).
Overseas donations
You can claim a deduction of donations made to overseas organisations provided that these organisations have DGR status.
This article was written by Sophie Barber (Lawyer), Laura Spencer (Senior Associate), and Harry Giannakidis (Principal Solicitor).
This article is part of the 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.
Whether you are uncertain about the deductibility of your donations or the overall tax implications of your crypto investments, our team is well-versed in the latest law and can provide tailored guidance to help you navigate the tax intricacies of crypto assets and assist in implementing efficient structures for your holdings. Please contact our team if you have any questions.
