Everything you need to know about Capital Gains Tax and Cryptocurrency

tax and crypto

Trying to get your head around what you need to track, report and pay to the ATO when it comes to cryptocurrency? If you’re thinking that the ATO doesn’t know what you’re up to – think again. 

These days the ATO is fairly savvy on cryptocurrency markets and blockchain technology. So to avoid getting yourself in hot water with the government, it’s important that you understand which transactions are taxable and how to declare capital gains or losses on cryptocurrency

In this article, we’ll cover the crypto transactions that are subject to tax in Australia as well as capital gains tax as it relates to cryptocurrency. 

Which crypto transactions are subject to tax? 

We hate to break it to you, but essentially all of them! You’ll be taxed when you: 

  • Sell or gift cryptocurrency
  • Exchange one crypto for another crypto
  • Convert crypto into dollars such as AUD 
  • Pay for goods and services with crypto

These are the four main activities the ATO is interested in. We should also note here that the ATO doesn’t consider a digital crypto wallet to be an asset. What it does consider to be assets are the singular crypto assets within the said wallet. 

Confused? Think of it this way, if you have an investment portfolio the portfolio itself is not taxable, however the investments inside your portfolio are. 

Do you have to pay tax on crypto capital gains? 

You sure do! Aussies are required to pay capital gains tax on crypto investments just as they would on their personal income in a financial year. 

Capital gains tax rates differ for individuals, companies and SMSFs in Australia. So if a person who earns $100,000 from their job in a year and also makes $20,000 in profit from selling cryptocurrencies in the same financial year, they would be taxed at a rate of 32.5%. This means that this individual would be up for $6500 in capital gains tax. 

The above example assumes that this person has held their investment for less than 12 months before selling. However, the ATO rewards people who hold onto their investments for longer than 12 months. 

So if the same individual held their crypto investments for longer than 12 months before selling (and assuming they made the same 20k profit) they would potentially receive a 50% discount on the capital gains tax. Meaning they’d only be up for $3250 instead of $6500, which are considerable savings. 

What if you make a loss? 

Let’s say you invest $10,000 in crypto then panic when the value drops by 20%, so you pull your remaining $8000 out. Do you still need to pay tax on that 8k? No you don’t, because your $8000 represents a capital loss. 

What you may not know is that the $2000 that you lost in that transaction can be used as a deduction from any other capital gains you made in the financial year, or in any future financial years. 

Need help from a specialised cryptocurrency accountant?

Then look no further! Infinity22 is the leading expert in crypto accounting for cryptocurrency, 

NFTs and Web3 investors. Book an appointment with us today to take control of your cryptocurrency investing.