In part 1 of Your Roadmap To Preparing Crypto Tax In Australia we established that your roadmap to preparing crypto tax in Australia was:
1. Understand the regulations on cryptocurrency taxation
2. Gather documentation of all crypto transactions
3. Calculate your profits and losses
4. Identify acquisitions, disposals and income from crypto assets
5. Determine your capital gains or losses
6. Pay capital gains tax (CGT) on any profits
7. Lodge your income tax return with the ATO
8. Seek professional advice when necessary
We will now examine items 5 – 8 more closely.
5. Determine Your Capital Gains or Losses
If you are living in Australia, it’s important to understand that you may need to pay taxes on your cryptocurrency transactions as capital gains or losses. This article will explain how to calculate your capital gains or losses for crypto tax in Australia in order to ensure you are compliant with the law.
Firstly, you should know that the Australian Taxation Office (ATO) takes an event-based approach to assess your capital gains or losses from cryptocurrency transactions. This means that the capital gains or losses you make from each transaction will need to be calculated and reported separately.
The basis of your capital gains or losses calculation is the cost base of the cryptocurrency you purchased or sold. This is the price you paid to acquire the cryptocurrency, plus any associated costs such as brokerage fees, transaction costs and other expenses. To determine your capital gain or loss, subtract the cost base from the amount you received when the currency was sold or exchanged.
If the amount you received is higher than the cost base, the difference will count as a capital gain. Conversely, if the amount you received is lower, the difference will count as a capital loss. You can then use this figure to calculate your taxable gains or losses for that transaction.
Finally, you should also be aware of the personal use asset rules for cryptocurrency taxation in Australia. These rules apply when you purchase cryptocurrency with the intention of personal use or enjoyment, and not for investment purposes. In this case, any capital gains or losses you make from the transaction are disregarded and, therefore, not taxable.
By understanding the basic principles of crypto tax in Australia, you can ensure that all of your crypto transactions are reported accurately and you remain compliant with the law. Remember to record all the details of each cryptocurrency transaction, including the cost base and the proceeds from the sale, so you can accurately determine your capital gains or losses. Good luck!
6. Pay Capital Gains Tax (CGT) On Any Profits
If you have made profits from trading digital currencies in Australia, it is essential for you to pay taxes on these assets. Capital Gains Tax (CGT) applies to any profits you make from the disposal of capital assets such as cryptocurrency.
For this, you must first determine whether or not the cryptocurrency is a personal (or private) asset or a business, or trading asset. If it is a personal asset, then CGT will apply, and you must keep records of the purchase and sale dates, the amounts of crypto purchased, and any other costs associated with the transaction.
To calculate the amount of tax payable, you must determine the capital gain (or loss) for each crypto you have disposed of. Subtract the cost price from the sale price to arrive at the capital gain (or loss). Once you have totaled your capital gain (or loss) sum, you can then use this to figure out the amount of tax payable.
If you have received any crypto as a form of income, such as salary or wages, these will also be subject to taxation. The ATO has stated that digital currencies received by an employer in exchange for services should be treated as an ordinary income and be subject to the same tax rules as regular currency.
Crypto tax in Australia is complex and can be overwhelming. To ensure compliance with tax laws and regulations, we highly recommend consulting with a qualified tax specialist. They can provide you with advice on your specific situation and help you accurately calculate and submit any taxes due.
7. Lodge Your Income Tax Return With The ATO
Once you have taken the time to prepare your crypto tax in Australia it is time to lodge your income tax return with the ATO. Lodging your tax return can seem like a daunting task, but if you have done your due diligence and prepared your crypto tax properly you should have a straightforward process.
The first step is to fill out the Australian tax return form, known as the ‘Tax Return for Individuals’ form. This form is available online, or can be downloaded from the ATO website. It requires you to provide detailed information on your income, deductions and tax offsets. If you have done your calculations correctly, you should have all the required information on hand to complete the form.
The next step is to submit the form to the ATO. You can do this online, via MyGov, or post the form to the Tax Office. If you choose to do it online, make sure you are connected to a secure network. Once you have completed the form, the ATO will send you a notice of assessment, outlining how much tax you owe or how much you will be refunded.
Finally, if you need to make payment or receive a refund, you will need to complete a bank transfer or direct credit. You will need to ensure that you provide the ATO with the correct bank account details to complete the transfer.
When it comes to crypto tax in Australia, it is important to do your research and ensure that you have prepared your return correctly. Once you have done this, make sure you lodge your Tax Return with the ATO as quickly and accurately as possible.
8. Seek Professional Advice When Necessary
When it comes to preparing crypto tax in Australia, it’s important to understand that the regulations are changing all the time.
As such, it’s a good idea to have professional advice from someone like Infinity 22 when trading in crypto. It’s a complex process and it can be difficult to navigate the rules and regulations. A professional can help you to be sure that you are complying with the latest regulations.
Tax professionals who specialise in crypto tax can review your transactions and determine the best course of action for you. They can provide advice on which types of investments are the most tax-efficient, and they can calculate and prepare your taxes accurately. Professional advice can also help you to identify deductions and credits available to reduce your taxable income.
When looking for a professional tax preparer, make sure to check their qualifications. Do they have a Certified Practicing Accountant (CPA) designation? This is the most appropriate certification for preparing tax returns for crypto traders in Australia. Also, is the individual familiar with the taxation of digital assets in Australia? This can be a good indication of how much experience a person has in dealing with crypto taxes.
Remember, professional advice can be very helpful in preparing crypto tax in Australia. It can take a lot of the stress and confusion out of the process and ensure that you are complying with all the rules and regulations. Don’t hesitate to seek professional help if you’re unsure or need assistance with your crypto tax returns.
