You don't have to make a profit before you must report cryptocurrency trading on your tax return. In fact, reporting losses can benefit you in other ways too.
If you are going to invest in cryptocurrency then it's a smart idea to develop a basic understanding of your tax obligations, considerations and tax implications. Lodging a tax return when you have been trading cryptocurrency can open a whole can of problems if you don't declare it correctly.
The ATO requires Australian Cryptocurrency designated service providers to hand over data on Australian customers to help them identify taxpayers who fail to disclose their cryptocurrency income details correctly.
If you think that the ATO don't know about your cryptocurrency, you are playing a dangerous game. The ATO can know even more about you, than you can remember about yourself. They source their data from such a range of diverse services that if you disclose information on your tax return that doesn't match the data that the ATO already have on you, you can be sure to receive a "please explain" letter.
So what makes my trade / swap a taxable transaction?
Whether you sell cryptocurrency for Australian dollars or exchange one form of cryptocurrency for another, the tax treatment is still the same. It is still recorded, at that point, as a transaction. It is a myth that it must be exchanged for an Australian dollar before it has to be reported.
Disposal of Cryptocurrency occurs when :
a. Selling cryptocurrency for Australian dollars
b. Exchanging one cryptocurrency for another
c. Gifting cryptocurrency
d. Trading cryptocurrency
e. Using cryptocurrency to pay for goods or services
What about the 'personal use' exemption?
Whilst there is such a thing as 'a personal use exemption' , this exemption only applies where the cost of the cryptocurrency does not exceed $10,000 AND you can demonstrate that the cryptocurrency was genuinely for personal consumption. It would come as no surprise for the ATO to challenge a 'personal use exemption' so ensuring that you have solid evidence of the genuine personal use is imperative. Mistakenly, relying on this exemption is one of the biggest reasons people fall in this regard.
How is tax calculated on Cryptocurrency?
There are two ways that cryptocurrency trade / swap can be classified. These are either as an Investor, whereby Capital Gains Tax (CGT) will apply or as a trader, whereby you are deemed to be running a business trading Cryptocurrency. In this case, you will pay income tax on the business profits.
There is a faint line between being a cryptocurrency investor and a cryptocurrency trader, but broadly speaking, if you are turning over your cryptocurrency every few days and chasing profits on these individual transactions, then it is more likely that you are running a business-like structure. If, however, you are holding onto the cryptocurrency with a long term goal of making a gain in mind, then you are more likely to be an investor.
What happens if I make a loss?
If your sale proceeds are less than your cost base, then you will make a loss. If you are an investor, these losses are called Capital losses. These losses can be offset against capital gains arising in the same year, or to the extent that they are not all used up, they can be carried forward to future years to absorb them against future capital gains. Unfortunately, you cannot apply capital losses against ordinary income. Capital losses can only be applied to capital gains.
How do I benefit from the 50% capital gains tax discount?
If you hold your cryptocurrency for more than 12 months, you may be eligible for a 50% discount on the capital gains tax that you pay. First, you need to calculate the cost base of that transaction, then calculate the difference from the proceeds to ascertain your profit on the cryptocurrency transaction. Before you can calculate the 50% deduction, you must remember to deduct any capital gain losses that may apply.
If you are investing or trading in the cryptocurrency space, it would be a wise choice to seek expert advice when completing your annual tax return.
If you need help lodging your tax return please get in touch with us on 0409715577.
This articles intention is to inform rather than advise and is based on legislation at the time. Each Taxpayer’s circumstances vary so we strongly recommend that you discuss this information with your Tax Agent, Accountant or Bas Agent before implementation. If you take, or do not take action as a result of reading this article, we accept no responsibility for any financial loss incurred. This is general advice only. Source : ato.gov.au
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