Cryptocurrency and the ATO

More than 1 million Australians own cryptocurrency, and the Australian Taxation Office has them in its sights and knows about your crypto assets.5% of Australian adults own at least one cryptocurrency, while more than one in 10 Australians under 35 hold assets such as bitcoin, Ethereum, ripple, Cardano, dogecoin, Shiba inu and Solana according to Roy Morgan Research polling.

Over one million taxpayers will have a message appear as a reminder when they prepare their tax returns saying they may have capital gains or capital losses from crypto to declare according to the ATO.

We have prepared a short list of FAQs which explains how the ATO deals with Cryptocurrency.

Does the ATO know if I have crypto investments?

Yes. The ATO receives information from share registries and crypto asset exchanges and has had a cryptocurrency data-matching program operating since April 2019.The data is used to identify the buyers and sellers of crypto assets, including addresses, phone numbers, names, bank accounts, transaction dates and coin types.

Is Cryptocurrency taxed?

Yes. If you sell an asset, including your cryptocurrency, you will need to calculate either your capital gain or capital loss, and then record those details in your tax return. The ATO has you in their sights and will be paying particular attention to what investors do with their cryptocurrency this tax season.

Transactions made via online exchanges, share registries are captured by the ATO’s data collection processes and the ATO is aware of buying, selling or exchanging digital coins and assets, so its important people understand what this means for their tax obligations.

This year it is likely that many cryptocurrency investors this year will be lodging losses after recent interest rate increases and economic instability. Crypto markets in particular have taken a hit after reaching record highs of nearly $3 trillion in November 2021 prior to dipping below $1 trillion.

How is cryptocurrency taxed?

The ATO will tax cryptocurrency assets such as coins and non-fungible tokens as capital gains tax (CGT) assets. However, investors who stake cryptocurrency, or who lock their existing tokens to help validate transactions on the blockchain and in exchange receive additional tokens, will have those rewards taxed as ordinary income. This tax is calculated based on the value of the staked tokens (once converted into Australian dollars) when they were received.

Broadly, cryptocurrency is taxed at the same rate as your income before the 50 per cent CGT discount is applied to investments held for at least a year.

Can I use cryptocurrency losses to offset tax?

Crypto investors and traders sitting on big losses from the recent market meltdown will be under intense scrutiny from the Australian Taxation Office to make sure they are making lawful deductions, particularly those who bought at the height of the boom, say tax specialists.

Crypto stocks have lost on average around 70 per cent over the last eight months as the heavily hyped bitcoin and other digital currencies went from boom to bust in a wave of liquidations, withdrawal freezes, trading halts and bailouts.

If you’ve sold your cryptocurrency assets for less than you bought them for, you have a so-called capital loss. You can use this to offset other capital gains – that is, investment gains you’ve made by selling investments for more than you purchased them.

But you must have made the loss. Many people regard certain cryptocurrency transactions as ‘paper’ gains or losses, but the ATO regards them as very real.

• Any realised capital losses on crypto investments can be offset against capital gains from other investments to reduce assessable capital gain
• Those carrying on a crypto trading business should consider recording closing stock (inventory) at market value as opposed to cost as this will reduce/increase your losses/profits
• Losses from your crypto trading and speculating may be able to be offset against other earned income.
• Running a crypto trading business through a company that incurred losses this financial year could create an opportunity to access the “loss carry back offset”, where eligible, and claim a tax refund this year for tax paid in prior years.

How do you work out what capital gains or losses are?

You will need to convert the value of your cryptocurrency assets into Australian dollars. The ATO suggests investors use the exchange rates provided by digital currency exchanges at the time of the transaction to do this. Investors can then work out the CGT using the ATO’s online calculator and record-keeping tool.

Generally, your CGT will be calculated as your total capital gains less any capital losses and less any entitlement to any CGT discounts on your gains.

What is the difference between a Crypto investor and a trader?

Most people fall into the investor category and have the CGT rules applied to them. If they’re an investor, it means they’re holding cryptocurrency as an investment. These investors will be taxed under CGT rules.

If you’re transacting large amounts of cryptocurrency with a goal of maximising profits, rather than having a buy-and-hold approach to cryptocurrency, then you’re likely to be considered a trader. That means the proceeds of your trades will be taxed under trading stock rules, rather than CGT rules, with the proceeds assessed as income.

What information do I need to fill in my tax return as a crypto investor?

This is important as you need to create a list/spreadsheet of the following:

• Dates of your transactions and the value of the cryptocurrency in Australian dollars at the time of the transaction
• Provide detail the purpose of the transaction
• The details of the other transacting party

Investors should consider using digital record-keeping solutions and consult with your accountant to make sure they’re getting things right. If you are uncertain about how CGT impacts your cryptocurrency assets, please reach out to our office for advice.

We offer a 15-minute free consultation to discuss your tax, property investment and business needs. Book your complimentary consultation now.

Book Now

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Investax, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.