In Australia, the Australian Taxation Office (ATO) has specific rules regarding the taxation of cryptocurrencies. Understanding these is crucial if you’re considering investing in crypto assets, as they can have significant implications on your tax obligations.
Capital Gains Tax
In Australia, cryptocurrencies are subject to capital gains tax (CGT). The ATO considers cryptocurrencies not just as a digital currency but as an asset. This means that whenever a crypto investor disposes of their cryptocurrency—be it through trading it for another cryptocurrency, selling it for fiat currency, or using it to purchase goods or services—a CGT event occurs. Therefore, all such transactions need to be reported.
This even extends to crypto-to-crypto transactions, even if they are facilitated on a decentralised platform. For instance, if you exchange Ethereum for another token or NFT, this transaction would trigger a CGT event, and the capital gain or loss must be recorded and reported. The same applies when using crypto to purchase goods or services with some exceptions.
For longer-term investments, a CGT discount may be applicable if you’ve held the cryptocurrency for more than 12 months.
Income Tax
Beyond CGT, income tax also plays a vital role in crypto taxation. If you’re earning income through cryptocurrency mining, participating in DeFi protocols, staking, or earning interest on your holdings, these are considered assessable income and should be declared in your tax return.
It’s crucial to note that on-chain activities can be traced. Therefore, any earning activities from DeFi protocols and similar platforms need to be accurately reported. The ATO has made it clear that it is closely monitoring cryptocurrency transactions, and failing to report such income can result in penalties.
Crypto tax software can be extremely helpful to help maintain thorough records of your transactions.
As always, given the complexity and rapidly evolving nature of the cryptocurrency space, consulting with a tax professional who understands the intricacies of cryptocurrency taxation in Australia is highly recommended.
