The cryptocurrency market has been booming in the past few years. It is the reason for its popularity and why many people are interested in investing in it.
However, some people are still wondering how to calculate capital gains tax on crypto. This blog will provide you with some tips and tricks on calculating capital gains tax on crypto.
| Income | Tax Rate | Tax Payable |
| $0 – $18,200 | 0.00% | 0% |
| $18,201 – $45,000 | 19.00% | Nil + 19% of excess over 18,200 |
| $45,001 – $120,000 | 32.50% | $5,092 + 32.5% of excess over 45,000 |
| $120,001 – $180,000 | 37.00% | $29,467 + 37% of excess over 120,000 |
| $180,001+ | 45.00% | $51,667 + 45% of excess over $180,000 |
Still not sure about your capital gains tax? Call us today to fix this.
How to Calculate Capital Gains Tax on Crypto Easily?
When you sell or otherwise dispose of your crypto, you may have to pay capital gains tax on the profits. This is a tax paid on the increase in the value of an investment.
To calculate whether you have a capital gain or loss, you need to know your cost basis.
This is what you paid to acquire your crypto, plus any related fees. Once you know your cost basis, simply subtract this from the sale price of your crypto.
If you dispose of it otherwise, subtract this from the fair market value of your crypto on the day you disposed of it.
You might have to pay any amount from 10-37% for the short term. For the long term, which is for more than a year, you might have to pay 0-20% of CGT.
How Does Crypto Capital Gains Tax Work?
A cryptocurrency is considered a capital asset, and as such, any profits or losses made from its sale or exchange are subject to capital gains tax.
The tax is calculated as capital gain or loss. It depends on the difference between the purchase price and the sale price.
The net capital gain (the total profit or loss) from all crypto sales or swaps in a given year is added to your taxable income.
The amount of tax payable depends on several factors, including the value of the cryptocurrency at the time of sale or exchange and whether it has been traded within a specific time (a so-called “taxable event”).
Capital Gain Tax on Cryptocurrency Minimisation Tips
When it comes to capital gains tax on cryptocurrency, you can do a few things to minimise your liability. One of the most important is to hold your assets for over 12 months.
It will help reduce the tax you have to pay on any profits you make. You can also use specific strategies like gifting or donating crypto to avoid taxes.
You might pay only 0-20% CGT, for long-term crypto holding.
You may also want to look into using crypto for buying goods and services, converting crypto into Australian dollars, etc., to minimise CGT.
But what is Capital Gains Tax on Crypto?
Capital gains tax is a tax that you pay on profits made from the sale of an asset. It could be a house, car, or in this case, cryptocurrency.
If the asset’s value has increased since you bought it, you will have to pay capital gains tax on the difference between the sale price and what you paid for it.
How do hardware crypto wallets work?
What Are the Different Types of Crypto Capital Gains?
Selling crypto
You are subject to Capital Gains Tax (CGT) when you sell your cryptocurrencies. This tax applies whether you trade one cryptocurrency for another or trade a cryptocurrency for a stable coin. The difference between the buying and selling price is what you will be taxed on, and CGT rules will apply.
Trading or Swapping Cryptocurrencies
When you trade or swap cryptocurrencies, you need to consider the cost base of the coin—the price you paid for it plus any fees associated with the purchase. If you sell the coin for more than the cost base, you will have to pay Capital Gains Tax (CGT) on the difference.
NFTs
NFTs can be taxed in various ways, depending on their use case. Common taxation methods include Capital Gains Tax (CGT), trading stock, business or profit-making schemes, and rights granted by a smart contract. It is important to be aware of the tax implications of holding NFTs so that you can make informed decisions about how to best use them.
When Is Cryptocurrency Considered Income Tax?
Cryptocurrency is considered income tax in Australia if the Australian Taxation Office (ATO) views you as a trader.
This determination is based on many factors, including how often you trade, the amount of time you spend trading, and the level of risk involved in your trades.
If you are not seen as a trader, cryptocurrency is considered capital gains tax. There are three ways to earn cryptocurrency: salary payments, selling NFTs (like an artist), becoming a validator, and earning through PoS/PoW.
You’re taxed differently depending on how you’re seen to be acquiring new mining tokens: as a hobby miner vs. commercial operation.
Do Cryptocurrency Bots Actually Work for Trading?
Are There Any CGT Exemptions?
Cryptocurrency is considered a taxable event when it is bought or sold. Any profits you make from trading cryptocurrency will be subject to capital gains tax (CGT).
The value of the new cryptocurrency has to be accounted for in Australian dollars, even if you are exchanging two different cryptocurrencies.
Do Cryptocurrencies Pay Capital Gains Tax?
Cryptocurrencies are considered property for tax purposes, and as such, when you sell them, you are required to pay capital gains tax.
The amount of tax you pay depends on a few factors, including how long you hold the cryptocurrency and your filing status.
Currently, these taxes are levied at 0%, 15%, or 20% depending on your situation.
Can You Defer Capital Gains on Crypto?
Deferring capital gains on crypto is a process that can be done to avoid paying taxes on investments made more than 12 months ago. The deferral comes with the promise of being able to claim the losses in the future when you sell your crypto for a profit.
How Does IRS Track Crypto Capital Gains?
The IRS tracks crypto capital gains by collecting data from various data sources. It includes tracking information from the Australian Tax Office through data-sharing partnerships (DSPs) and collecting KYC information from exchanges and wallets.
KYC is a process that some exchanges and wallets require when signing up for an account.
It allows the exchange or wallet to collect personal information about the customer, such as name, address, date of birth, etc.
Do You Pay Taxes Every Time You Sell a Crypto?
ryptocurrency is not taxed when it’s first purchased in Australia. In addition, it is also GST-free, which means that you do not have to pay the Goods and Services Tax on any crypto transactions.
However, you will need to pay capital gains tax when you sell your cryptocurrency for Australian dollars. The amount of tax you will need to pay will depend on how long you held the cryptocurrency before selling it.
Do You Pay Capital Gains on Crypto if You Don’t Sell?
If you are holding crypto for 12 months, you do not pay capital gains tax. If you sell your crypto before a year, you will attract CGT.
Conclusion
When you sell or otherwise dispose of your crypto, you may have to pay capital gains tax on the profits. This is a tax paid on the increase in the value of an investment.
If you are unsure how to calculate CGT on your crypto, we would love to help you out.
For more on our crypto accountant services, visit here.