We’re in the midst of tax season and if you own any cryptocurrency, you may be wondering if you need to pay tax on it. The Australian government does not view Bitcoin and other cryptocurrencies as money or foreign currency. Instead, the ATO classes crypto as property, and as an asset for Capital Gains Tax (CGT) purposes. Crypto can also be viewed and taxed as Income Tax. How you're taxed depends on how you use your cryptocurrency.
With the ATO announcing that it's specifically targeting cryptocurrency traders this tax season, it’s important that you understand the tax consequences of your crypto trading.
When you buy cryptocurrency using Australian dollars or any other fiat currency, you are NOT required to pay taxes on it. This is one of many reasons why HODLing your cryptocurrency is a great idea!
If you sell crypto to earn fiat currency, it triggers the capital gains tax (CGT), which is the tax you pay on a capital gain. If you hold the cryptocurrency as an investment for 12 months or more before selling, you may be entitled to the CGT discount.
EXCHANGING CRYPTO FOR ANOTHER CRYPTO
Exchanging one cryptocurrency for another is also considered a capital gain meaning you have to pay the CGT.
If you plan to move your cryptocurrency from one wallet to another, it is mostly non-taxable. The same rule applies to exchanges made to another wallet.
BUYING GOODS WITH CRYPTO
If you use Bitcoin or any other cryptocurrency for purchasing goods and services, they may be excluded from your taxes. However, the amount should not exceed $10,000. If the cost basis does go over $10,000, personal use exemption will not apply and you’ll be taxed for the capital gains. You may also need to prove that the acquisition of your cryptocurrency was made with the intention of making a purchase.
STAKING REWARDS AND AIRDROPS
Some projects 'airdrop' new tokens to existing token holders as a way of increasing the supply of tokens (for example, Pundi X and Tron).
If you receive coins through an airdrop, you may be taxed for it. The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is received. For example, let’s say you receive 1,000 coins from a new crypto project. At the time, the cryptocurrency was worth $0.10 per coin. You should report $100 as part of your ordinary income. If the price goes up when you go to sell the airdropped coins later down the track, you will report the new value as a capital gain.
CHAIN SPLITS (FORKS)
If you hold cryptocurrency as an investment, and receive a new cryptocurrency as a result of a chain split (such as Bitcoin Cash being received by Bitcoin holders), you do not derive ordinary income or make a capital gain at that time as a result of receiving the new cryptocurrency.
If you hold the new cryptocurrency as an investment, you will make a capital gain when you dispose of it. When working out your capital gain, the cost base of a new cryptocurrency received as a result of a chain split is zero. If you hold the new cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount.
It’s always a good idea to speak to a professional if you are unsure how to report your cryptocurrency. For more information, you can also visit the ATO.