Cryptocurrency
If you dispose of an asset - you will need to calculate the capital gain or loss and record this in your tax return. But what is an asset - property, shares, crypto or NFTs, collectables (coins, stamps, antiques, to name a few, costing $500 or more) all fall into this category.
Crypto and capital gains tax
A question that often comes up is when do I pay tax on cryptocurrency? Or even Do I pay tax on cryptocurrency or NFT’s.
Generally, a Capital Gains Tax event occurs when you dispose of cryptocurrency. This doesn’t just mean selling cryptocurrency, but also exchanging one cryptocurrency for another, gifting it, trading it, or using it to pay for things.
Each cryptocurrency is a separate asset for tax purposes. When you dispose of one cryptocurrency to acquire another, this triggers a taxing event.
Transferring cryptocurrency from one wallet to another is not a disposal if you maintain ownership of the coin.
Record keeping is extremely important – you need receipts and details of the type of coin, purchase price, date and time of transactions in Australian dollars, records for any exchanges, digital wallet and keys, and what has been paid in commissions or brokerage fees, and records of tax agent, accountant and legal costs. The ATO regularly runs data matching projects and has access to the data from many crypto platforms and banks.
If you make a loss on cryptocurrency, it is usually a capital loss and can then only be claimed against capital profits, not against your regular income.
Keeping Records is key
You need to keep records of all transactions made in cryptocurrency. This includes acquiring, disposing, transferring and holding. These records must be kept for a minimum of 5 years after disposing of the cryptocurrency.
When you buy/acquire the cryptocurrency you will need to keep:
- Receipts of transactions
- Documents for each transaction showing:
- The name of the cryptocurrency
- The amount of the cryptocurrency
- The price in Australian Dollars
- The Date and Time of the transaction
- Commission of brokerage fees on the purchase
- Professional Advisor Costs
- Exchange Records
Whilst owning/holding the cryptocurrency you will need to keep:
- Software costs related to managing the tax affairs (Koinly or Cointracker for example)
- Digital wallet records and keys
- Documents relating to the date and quantity of crypto received via alternate methods
When you sell/dispose of or transfer the cryptocurrency you will need to keep:
- Receipts of Sale or transfer
- Documents for each transaction showing:
- The name of the cryptocurrency
- The amount of the cryptocurrenc
- The proceeds in Australian Dollars
- The Date and Time of the transaction
- Commission of brokerage fees on the purchase
- Exchange Records
- Calculation of the capital gain or loss
Gifting an asset such as cryptocurrency might still incur tax
If you donate or gift an asset you don’t avoid capital gains tax. If you receive nothing or less than the market value of the asset, the market value substitution rules might come into play. The market value substitution rule can treat you as having received the market value of the asset you donated or gifted for the purpose of your CGT calculations.
For example, if Mum & Dad buy a block of land then eventually gift the block of land to a family member, the ATO will look at the value of the land at the point it was gifted. If the market value of the land is higher than the amount paid for it, then this would normally trigger a capital gains tax liability. It does not matter that Mum & Dad did not receive any money for the land.
Donations of cryptocurrency might also trigger capital gains tax. If you donate cryptocurrency to a charity, you are likely to be assessed on the market value of the crypto at the point you donated it. You can only claim a tax deduction for the donation if the charity is a deductible gift recipient and the charity is set up to accept cryptocurrency.
After all this the mystery of Crypto has vanished and it becomes just another investment with record keeping required. As with listed investments there are now platforms that provide tax reports for your Crypto investments. Perhaps take a look at Koinly, Crypto Tax or Cointracker to see what works for you.
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