Cryptocurrency: 2024 Outlook, Taxation and more

In 2024, the cryptocurrency landscape continues to evolve rapidly, with new developments shaping the way individuals and institutions interact with digital assets. As blockchain technology matures and cryptocurrencies become further integrated into mainstream financial systems, the Australian Taxation Office (ATO) has kept pace, refining its approach to how these assets are taxed. In Australia, cryptocurrency is treated as property, meaning that transactions, whether buying, selling, or exchanging, have potential tax implications. As the market grows and regulations become more sophisticated, it is crucial for investors to stay informed about how their crypto activities may impact their tax obligations. This article will explore the current tax treatment of cryptocurrencies in Australia, providing clarity on the ATO’s guidelines and helping investors navigate the complexities of crypto taxation in 2024.

How Are Cryptocurrencies Taxed?

Cryptocurrencies, such as Bitcoin, are decentralised digital assets that operate independently of any central authority or government. For many taxpayers, understanding how to handle cryptocurrency transactions for tax purposes remains a challenge. This confusion often stems from the misconception that, because these digital assets are referred to as “currencies,” they should be treated similarly to cash. However, the reality is that cryptocurrencies are considered investment assets by the Australian Taxation Office (ATO), and the tax treatment differs accordingly.

A common question among crypto investors is whether they need to pay tax when the value of their cryptocurrency increases or if they can claim a loss when it decreases. The answer lies in how these digital currencies are used. While cryptocurrencies like Bitcoin and Ethereum were initially designed to function as digital currencies, many people have been using them more like an investment portfolio, similar to shares or other investment assets.

According to the ATO, any disposal of cryptocurrency can trigger a Capital Gains Tax (CGT) event. A disposal occurs in several situations, including when you:

• Sell a cryptocurrency asset
• Gift a cryptocurrency asset
• Trade, exchange, or swap one cryptocurrency asset for another
• Convert a cryptocurrency asset into Australian dollars or another fiat currency
• Use a cryptocurrency asset to purchase goods or services

In each of these cases, the ATO requires you to calculate and report any capital gain or loss as part of your tax obligations. 

Example: Imagine you bought 1 Bitcoin in 2022 for $10,000 AUD. Fast forward to 2024, and the value has risen to $30,000 AUD. If you decide to sell your Bitcoin at this point, the ATO will treat this as a capital gains event, and you’ll need to declare the $20,000 profit. Conversely, if the market dips and you sell it for $8,000, you can claim a loss.

Once you understand when a CGT event occurs, the next step is determining the value of your cryptocurrency at the time of acquisition or disposal—a critical factor in calculating your tax liability.

How Do You Value Cryptocurrency in Australian Dollars?

The ATO requires you to know the value of your cryptocurrency assets to determine whether you’ve made a capital gain or loss when a CGT event occurs.

To calculate the value of your crypto assets at the time of acquisition or disposal, you must convert their value into Australian dollars. Since 1 January 2020, the ATO has adopted the exchange rates provided by the Reserve Bank of Australia (RBA). If you need daily foreign exchange rates, you can refer to the RBA’s Exchange Rates. For currencies not listed by the RBA, you may use any reasonable externally sourced exchange rate.

What Records Should You Keep for Your Cryptocurrency?

As per ATO guidelines, it’s essential to maintain thorough records of all your cryptocurrency transactions to accurately determine whether you’ve made a capital gain or loss. To ensure compliance and simplify your tax reporting, you should keep the following records for each crypto asset:

• Digital receipts for any purchases, transfers, or disposals of crypto assets.
• The date of each transaction.
• A description of each transaction, including the purpose and the other party involved (which can be their crypto asset address).
• Exchange records for each transaction.
• The value of the crypto asset in Australian dollars at the time of the transaction.
• Any costs incurred for agents, accountants, or legal advice.
• Digital wallet records and keys.
• Any software costs associated with managing your tax obligations.

It’s important to remember that each cryptocurrency is treated as a separate CGT asset, so maintaining clear, detailed records for each one is critical. Keeping organized and accurate records will help you meet your tax obligations efficiently and avoid potential compliance issues down the line.

What Should Individuals Trading in Cryptocurrencies Consider?

If you hold cryptocurrency for your own personal use and you paid $10,000 or less to acquire the digital currency, then there is generally no tax impact when you dispose of the currency. However, if the cryptocurrency is not held for your personal use and enjoyment then there are some tax issues that can arise.  

If the cryptocurrency is held as an investment (i.e., not for personal use and enjoyment) or the cost is more than $10,000 then CGT might apply when you sell or exchange the currency. The taxing point for CGT purposes is normally when a contract is entered into. If there is no contact (which is often the case with digital currencies) the taxing point is when ownership changes.

The line between personal use and investment can be very thin. It will be difficult to argue that you hold cryptocurrency for personal use if you use it irregularly to purchase goods and services and you made a large gain from holding and trading it.

What Should Businesses Trading in Cryptocurrencies Consider?

If your business accepts cryptocurrency as payment for goods or services, it is treated just like any other form of payment. If your business is registered for GST, the price a customer pays using digital currency should include GST. Similarly, if you buy goods or services for your business and pay with cryptocurrency, you can usually claim GST credits on the transaction in your activity statement.

If you hold cryptocurrency as trading stock (meaning you buy and sell it as part of your regular business activities), any profits are taxed as business income, not under capital gains tax (CGT). In this case, CGT discounts and exemptions usually don’t apply. However, if you are running a cryptocurrency trading business, you can generally claim losses and business-related expenses.

Cryptocurrency tax rules can be complex, so it’s important to get the right advice to make sure you comply with the law.

Can Your SMSF Invest in Cryptocurrencies? 

An SMSF can invest in cryptocurrencies, but there are several important factors to consider before doing so. Cryptocurrencies are high-risk investments due to their blockchain-based nature and lack of regulation. While media reports often highlight the significant gains made by early investors, the reality is that cryptocurrency prices are highly volatile. 

Trustees must ensure that any investment in cryptocurrency aligns with the fund’s investment strategy, is permitted by the Trust Deed at the time of investment and is an appropriate choice for the fund. Specifically, the sole purpose test under the Superannuation Industry (Supervision) Act 1993 requires that the fund exists solely to provide retirement benefits to its members or to their dependants in the event of a member’s death before retirement. Trustees must also consider whether the risk associated with cryptocurrencies is in the best interests of the fund.

For tax purposes, gains and losses in the fund are treated in the same way as other assets in the fund. That is, CGT may apply to any gains made on the sale or exchange of the currency.

When investing in cryptocurrency through your SMSF, it’s important to address certain compliance issues. One key requirement is ensuring that the digital wallet used for the investment is properly set up in the name of the fund or its corporate trustee. If the wallet is in your personal name and funded by SMSF money, this creates a breach in compliance, regardless of your intent. Your SMSF auditor will need to confirm the ownership and valuation of the cryptocurrency, so maintaining clear separation between personal and SMSF assets is essential to meet regulatory obligations.

Conclusion 

As the world of cryptocurrency continues to evolve, staying on top of tax regulations is crucial to ensuring compliance and maximizing your returns. Navigating the complexities of cryptocurrency taxation can be challenging, especially with constantly shifting guidelines from the ATO. Whether you’re an individual investor, business owner, or SMSF trustee, expert advice can help you avoid costly mistakes and optimize your tax outcomes.

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

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If you need personalized assistance with your cryptocurrency tax obligations, Investax Tax Specialists are here to help. Our experienced team understands the intricacies of crypto tax and can guide you through every step of the process, from record-keeping to CGT calculations. Contact us today to ensure you’re fully compliant and well-prepared for the 2024 tax year.

Reference

Crypto asset transactions – ATO 

RBA – Reserve Bank of Australia – Exchange rates External Link.