Crypto Taxes in Australia

Take outs:

• Tax Classification: Cryptocurrencies are classified as assets for Capital Gains Tax (CGT) purposes in Australia. This means that transactions such as selling, gifting, or trading cryptocurrencies, as well as engaging in DeFi activities, are subject to CGT. A 50% CGT discount applies if the cryptocurrency is held for over 12 months. Personal use assets under AUD 10,000 are exempt from CGT.

• Income Tax Scenarios: Cryptocurrency transactions can also trigger income tax in certain situations. This includes when cryptocurrencies are used as a primary income source (e.g., a business), or from activities like mining, staking, airdrops, lending, and DeFi rewards. The income tax treatment applies based on the fair market value at the time of receipt for rewards and interest.

• Tax-Free Transactions: Several cryptocurrency activities are not subject to tax, including buying crypto with AUD, holding crypto, acquiring crypto as a gift, transferring crypto between personal wallets, and donating crypto to registered charities with Deductible Gift Recipient (DGR) status. However, transaction fees for wallet transfers are subject to CGT.

• Compliance and Reporting: Cryptocurrency transactions must be reported in annual tax returns, and the ATO uses data-matching techniques to ensure compliance. Non-compliance can result in penalties, interest charges, and legal actions. Accurate record-keeping and consulting with a tax professional experienced in cryptocurrency are crucial for navigating these regulations effectively.

Crypto Taxes in Australia

Cryptocurrency was first subjected to taxation in Australia in 2014 following the Australian Taxation Office's release of its initial guidelines outlining the tax framework. Bitcoin and other cryptocurrencies are considered an asset for the purposes of CGT, so they are effectively brought within a formal framework for taxation. The approach to tax treatment varies depending on the nature of transactions and the purpose of holding that cryptocurrency.

When does Capital Gains Tax apply?

In Australia, cryptocurrency is subject to two types of tax: 

• Capital Gains Taxes (CGT); and 
• Income Tax. 

Capital Gains Tax (CGT)

If you are buying and selling cryptos for investment the ATO classifies you as a crypto investor. So any sale of your cryptos will be subject to capital gains tax (CGT). To work out the capital gain or loss you need to calculate the difference between the cost base (acquisition cost plus any expenses) and the capital proceeds (the sale value). You will be liable for CGT when you:

• Sell a cryptocurrency,
• Send a cryptocurrency as a gift,
• Trade / Convert crypto for another fiat currency or crypto,
• Buy goods and services.
• Engaging in DeFi activities including participating in liquidity pools.
• Exchanging crypto for wrapped; and
• Selling crypto obtained from a hard fork- ATO says the cost base for new coins from a hard fork is zero. So you will pay CGT on the whole amount as it’s all profit.

A 50% CGT discount applies if the cryptocurrency is held for more than 12 months. Personal use assets under AUD 10,000 used primarily for purchasing goods or services are exempt from CGT. Capital losses can be deducted from capital gains and carried forward to future years but cannot offset other income.

Income Tax

Cryptocurrency transactions can also be subject to income tax in specific scenarios:

• Business Transactions: If buying and selling cryptocurrencies is your primary income source, the ATO considers it a business. Business expenses related to earning this income can be deducted.
• Mining: A person conducting mining as a large-scale business operation is considered a commercial miner and is likely running a business. In such cases, the tax treatment will follow the trading stock rules. The costs of mining equipment and associated expenses may be deductible on the tax return.
• Staking and Airdrops: Rewards from staking or airdrops are ordinary income based on their fair market value upon receipt.
• Lending: Interest received from lending cryptocurrency is assessable income, similar to mining.
• DeFi Rewards: DeFi platform earnings are taxed like interest income, with the market value at receipt time being assessable.

ATO Individual Income Tax Rates for the Financial Year 2024-25

Tax Free Crypto Transactions

Here's when you won't pay tax on crypto in Australia:

• Buying crypto with AUD.
• Holding crypto.
• Acquiring crypto as a gift.
• Acquiring crypto from mining as a hobby.
• Transferring crypto between your own wallets – (Transaction fees will be subject to CGT)
• Donating crypto to registered charities with Deductible Gift Recipient (DGR) status.

Compliance and Reporting

Cryptocurrency transactions must be reported in annual tax returns. The ATO employs data-matching techniques to ensure compliance and can access data from exchanges and other sources. Non-compliance may lead to penalties, interest charges, and legal actions.

Summary

The tax treatment of cryptocurrencies in Australia requires careful attention to detail in record-keeping and reporting. Understanding CGT and income tax obligations is crucial to comply with tax laws and avoid penalties. Consulting a tax professional with cryptocurrency expertise can help navigate these complexities effectively.