The Tax Implications of Cryptocurrency

November 22, 2023

Cryptocurrency has fast become a popular investment and payment method in Australia however all too often the decision to purchase doesn’t come hand in hand with the necessary tax knowledge.

Here’s everything you need to know about cryptocurrency.

What is cryptocurrency?

It’s a digital form of currency that operates independently of central banks and governments. It’s based on blockchain technology, which is a decentralised and distributed ledger that records transactions in a secure and transparent manner. Here’s some further information on what blockchain is.

In Australia cryptocurrency transactions are treated as property for tax purposes, and therefore, cryptocurrency transactions are subject to taxation.

It’s important for individuals and businesses to understand the tax implications of their cryptocurrency activities. The Australian Taxation Office (ATO) has provided guidance on the tax treatment of cryptocurrency.

The cause-and-effect of cryptocurrency transactions

When a cryptocurrency is sold or exchanged, the transaction may result in a capital gain or loss. 

A capital gain is the difference between the purchase price and the sale price of the cryptocurrency, while a capital loss is the difference between the purchase price and the sale price of the cryptocurrency, but in reverse. 

If the cryptocurrency is held for more than 12 months before being sold, the capital gain is considered and is subject to a 50% discount in capital gains tax.

If an individual or business receives cryptocurrency as payment for goods or services, the fair market value of the cryptocurrency at the time of receipt is considered taxable income. This means that the individual or business must report the value of the cryptocurrency received as income on their tax return.

The ATO has also indicated that cryptocurrency used to purchase goods or services is treated as a disposal for tax purposes. This means that the transaction may result in a capital gain or loss, depending on the difference between the purchase price of the cryptocurrency and the fair market value of the goods or services at the time of purchase.

Regulation of cryptocurrency in Australia

It’s important to note that cryptocurrency transactions are no longer considered ‘untraceable’. In fact, cryptocurrency exchanges operating in Australia are required to comply with anti-money laundering and counter-terrorism financing (AML/CTF) regulations. This includes identifying customers and reporting suspicious transactions to the Australian Transaction Reports and Analysis Centre (AUSTRAC).

Just last year tracking cryptocurrency transactions was one of the ATO’s four tax time priorities in 2022. Through data matching capabilities, the ATO is now well equipped to identify any income generated from cryptocurrency.

How can you be best prepared?

You may be wondering what documentation you will need to provide regarding your cryptocurrency transactions. We ask that if you partake in any form of cryptocurrency transactions that you download a Koinly Report and have it with you prior to your appointment. Koinly is designed to summarise all cryptocurrency transactions into a legible report format. You can download a free report here.

When you’re ready to book a tax appointment with us, call us on 03 5623 2276.

Written by 
Jack Sabatinelli
November 22, 2023

News & Insights

What's the Skills and Training Boost Tax Deduction?

Professional development is integral to most, if not all, workplaces and many of our clients have programs in place that mean team members can access additional training courses throughout the year. It means upskilling the workforce which can only mean good things for the economy! The ATO is rewarding such leadership with a new Skills and Training Boost. Read on to learn what it is, and if you’re eligible.

Working from home? Here’s what you can (and can’t) claim as a tax deduction

Whilst working from home for the self-employed has been commonplace for years, the number of employees working from home has boomed over the last couple of years for a reason we’re all well aware of: covid. For many, this change will remain permanent – whether it’s for the full five days, or on a part time basis with flexible working arrangements now a mainstay of Australian employment.

What Areas are the ATO Focusing on for the 2023 Tax Season? 

The Australian Taxation Office (ATO) releases information regarding its areas of emphasis for tax returns each year. For 2023, these include rental property deductions, work-related expenses, and capital gains tax.

Changes to Depreciation Rules for Business

In 2020 during the COVID-19 pandemic, the government raised the immediate asset write off threshold to $150,000 for small businesses using the simplified depreciation rules then brought in Temporary Full Expensing (TFE), allowing many eligible businesses to claim an immediate deduction for depreciable assets. This measure was extended to 30 June 2023. After several years of such generous write offs, this is set to come to an end on 30 June 2023.