Understanding Cryptocurrency Tax in Australia

Cryptocurrencies have formed a borderless payment system that, while they have managed to decentralise the economy for many people, this also represents an advantage for organisations with illegal purposes, especially the deep web markets and illicit urban transactions paid for in crypto.

For this reason and many others, the Australian Government maintains a control over the manipulation of digital assets in national territory and has imposed some rules, which will definitely have an impact on your tax payment if you have earned income trading cryptocurrencies.

All citizens must keep a record of their movements with cryptocurrencies, especially if they are receiving an income.

How does cryptocurrency tax work in Australia?

The tax obligations for cryptocurrency traders depend on the nature of their activities. Taxes are applicable even when using foreign cryptocurrency exchanges.

Capital Gains Tax (CGT)

Capital Gains Tax, or CGT, applies when disposing of cryptocurrencies, which includes:

• Selling cryptocurrencies for fiat currency (e.g., AUD).
• Exchanging one cryptocurrency for another.
• Using cryptocurrencies to purchase goods or services.

A capital gain or loss is determined by the difference between the cost base (the amount paid to acquire the cryptocurrency) and the capital proceeds (the amount received upon disposal).

If the cryptocurrency is held for more than 12 months before disposal, individuals may be eligible for a 50% CGT discount.

More information: Australian Taxation Office.

In short, if you get some kind of capital gain from a cryptocurrency transaction, regardless of how it was done or for what purpose, a portion of that income will be taxed.

However, if this type of crypto transaction comes from a formal business, these gains will be perceived as regular income (like any other) and not as capital gain. It should be noted that each cryptocurrency involves different CGTs.

Every time you carry out a cryptocurrency transaction that leaves you a profit margin, said profit will be calculated in AUD and subsequently taxed.

For example, if an Australian buys 2 BTC at a price of $10,000 each and the market drives the price towards $15,000, the user would be making a net profit of $10,000 AUD, so taxes will be applied based on $10,000.

Income Tax

Cryptocurrency transactions may be treated as ordinary income when they arise from:

• Cryptocurrency mining activities.
• Receiving cryptocurrency as payment for goods or services.
• Staking rewards or airdrops.

In such cases, the fair market value of the cryptocurrency in AUD at the time of receipt is included in assessable income.

(Source: Australian Taxation Office).

Personal Use Assets

Cryptocurrency may be classified as a personal use asset if it is acquired and used within a short period solely to purchase items for personal use or consumption.

However, if the cryptocurrency is held primarily for investment purposes or used in a profit-making scheme, it is not considered a personal use asset, and CGT applies upon disposal.

Tax on cryptocurrency in business or professional income

As we prefaced above, business owners who run and carry out some type of transaction in cryptocurrencies, will be taxed as regular income, just as any other type of activity would be.

For businesses that transact in cryptocurrency:

• Trading Stock: Cryptocurrency held as part of a business’s trading activities is considered trading stock. The proceeds from the sale of such trading stock are included in the business’s assessable income, and the cost of acquiring the cryptocurrency is deductible. Source: Australian Taxation Office.
• Payment for Goods and Services: When a business receives cryptocurrency as payment, it is treated as ordinary income based on the fair market value in AUD at the time of the transaction.

The ATO (Australian Taxation Office) considers these transactions as regular income when they come from:

• Cryptocurrency mining,
• Professional trading in the crypto market,
• Solid businesses that involve cryptocurrencies and businesses related to the exchange between some good for cryptocurrencies, such as restaurants or other businesses that accept Bitcoin (which are common in Australia).

Now, whether the ATO considers the product of a crypto transaction as regular income or not will totally depend on the parameters under which said transaction was made, the business plan existing at the time of carrying it out, paperwork or digital records on scheduled payments, among others.

Tax on cryptocurrency as personal investment

If an individual’s cryptocurrency operations escape the aforementioned parameters, they will be considered as CGT.

This case is very common among entrepreneurs, freelancers and freelancers who do not have a company or business organisation beyond their knowledge and ability to invest.

The ATO considers personal investments to be small-scale cryptocurrency mining, trading when done occasionally and without a plan that leads to consistency and buying cryptocurrencies as a hobby, in order to earn some kind of income from your investment.

What is ATO?

The Australian government collects taxes on individuals and businesses through the Australian Taxation Office (ATO).

Each citizen or company must request this taxpayer number (tax file number), which is individual and non-transferable and is used by the ATO for identification and registration purposes.

Citizens can request the taxpayer number online 24 hours a day, 7 days a week and the only information required is the passport number and the address of the citizen. Obtaining the taxpayer number takes 10 days from the citizen’s online registration.

There are also paper forms that citizens must fill out and send directly to the ATO. Using this procedure, the process can take 28 days.

The taxpayer identification number must be well protected. It should not be supplied to third parties, except in very specific cases such as when a bank account must be opened.

How does the ATO classify cryptocurrency in tax regulations?

The ATO recognises cryptocurrencies as digital assets that are not issued by any government or political/financial entity, but rather work decentrally through a blockchain network, whereby all records of transactions made are kept without the possibility of being falsified/modified.

It is necessary to mention that the last years have been very important for the launch of new cryptocurrency projects and not all are equal to Bitcoin.

Despite the fact that almost all of these digital assets share characteristics (such as a particular blockchain and borderless transactions), the ATO remains open to change or reclassify cryptocurrencies should a project with different properties appear. For example, if any bank launched a centralised cryptocurrency.

Record-keeping for cryptocurrency transactions

Regardless of how you use your cryptocurrencies, each Australian citizen must keep track of their transactions, regardless of whether it is for personal purposes or for reasons of a particular business.

Maintaining thorough records is crucial for accurate tax reporting and compliance with Australian Taxation Office (ATO) requirements. Essential information includes:

• Transaction Dates: When each transaction occurred.
• Value in Australian Dollars (AUD): The equivalent AUD value at the time of each transaction.
• Purpose and Counterparties: The nature of the transaction and the other parties involved.

Keeping detailed records will assist in meeting your cryptocurrency tax obligations and enable accurate calculation of income, losses, expenses, and more. (Source: Australian Taxation Office).

In addition, you must keep records regarding any activity that you have maintained in crypto spaces. This information will not be directly delivered to the ATO but will help you keep detailed records of the transactions you have carried out.

• Receipts and invoices for online purchases and investments in cryptocurrency exchange companies
• Accounting records
• Activity logs on wallet platforms (where users keep their cryptocurrency tokens)
• Software expenses to calculate your tax obligations

Saving this information will prevent you from losing track of your expenses and taxes, so making a habit of this record is a great idea.

Tax Rates and Reporting

As of the 2024–2025 tax year, the individual income tax rates in Australia are:

• $0 – $18,200: 0%
• $18,201 – $45,000: 16%
• $45,001 – $135,000: 30%
• $135,001 – $190,000: 37%
• $190,001 and over: 45%

These rates apply to taxable income, which includes net capital gains. It’s important to report all cryptocurrency-related income and capital gains in your tax return to remain compliant with ATO regulations. (Source: CoinLedger)

Future of crypto

As of this writing, there are at least 10M+ distinct tokens, not to mention that new projects with brilliant ideas are constantly emerging, which are seized upon by futuristic technologies to exert a function.

That is, it is not only a good idea from the economic point of view, but they will also help you learn, optimize your performance in different obligations and even for entertainment.

Bitcoin in particular, was created to be a deflationary currency (its value will increase over time), the mining reward is chopped in half every 4 years (in an event called halving) – thus making Bitcoin’s total supply finite and increasing its demand dramatically every certain period. of time. This causes the price of BTC to increase “The lower the supply, the greater the demand”.

Below are some benefits and considerations for investing in crypto:

• Anonymity and Privacy: Anonymity and privacy are another of the strengths of cryptocurrencies, because the blockchain system prevents external parties, organizations and governments from knowing what you are investing or buying in, how much you have spent and who you are buying from.
• Transaction costs: The fees for transaction with cryptocurrencies are much lower than those made with traditional currencies. Transaction costs are typically zero to very low for cryptocurrency exchange as miners are compensated by the network.
• Accessibility: Traditional assets and certain equities can be difficult to access without a centralised institution. However, with cryptocurrencies it is easy, not as many permits are required and businesses operate 24 hours a day. You can receive and send cryptocurrencies without expensive software, without extensive training or licenses, and nobody can stop you from investing.
• Easy to handle: It is becoming increasingly complex to carry large amounts of money from one place to another. Carrying thousands in cash can be a problem; However, with cryptocurrencies all these difficulties are solved, since it is possible to carry any amount of money in cryptocurrencies in just a flash memory.
• Transaction speed: With cryptocurrencies, you can send money anywhere in the world, without restrictions and it will arrive in just minutes. It will only take the time it takes for the network to process the payment.
• Low inflation risk: Although their prices change in the market depending on bullish/bearish trends, cryptocurrencies have very low inflationary risk. This happens because all the traditional currencies in the world are controlled by governments and if they face a crisis, then their currency suffers the effects, which leads to a devaluation in the value of the currency. Because governments do not directly control cryptocurrencies, they cannot mismanage them and consequently, they are not capable of damaging their value, as has happened in countries like Venezuela.

You can buy any cryptocurrency in Australia from a local exchange platform, although it is recommended that you choose one that serves your needs in terms of rates, manageability, the fluidity of the system and details of the wallet.

Easy Crypto AU is a local exchange platform on which Australian residents will be able to buy Bitcoin and other cryptocurrencies directly in AUD through bank transfers.

After registering in the Easy Crypto system, you will have to verify your account with a KYC process and you will be able to buy Bitcoin, Ethereum, Dash, Digibyte, Litecoin, Ripple and many other cryptocurrencies. If you have questions, the customer support team will be ready to accompany you on your orders.