Cryptocurrency – Do you have a Tax Obligation?
In recent years, cryptocurrencies have become popular payment systems used around the world. As interest in digital currencies has continued to grow, the ATO have begun contacting cryptocurrency users and informing them of their tax obligations associated with cryptocurrency assets.
As part of their response, the ATO will be writing to approximately 100,000 taxpayers with cryptocurrency holdings to explain the tax obligations associated with their digital currencies and ask that they review their previously lodged tax returns. The ATO will also contact approximately 300,000 taxpayers with cryptocurrency assets as they lodge their 2021 tax return and ask that they report their cryptocurrency capital gains or losses.
Cryptocurrency tax obligations:
Capital gains tax (CGT) occurs when you dispose of your cryptocurrency. Your capital gain or loss is given by the difference between the initial cost of acquiring the cryptocurrency and the market value of what you receive when you dispose of the digital currency. Your CGT is included in your income tax and the tax applies only to appreciating assets, though you are still required to report both capital gains and losses in your income tax return.
Most taxpayers with appreciating cryptocurrency assets will be subject to CGT. Taxpayers are exempt from CGT if either,
- The cryptocurrency is regarded as a personal use asset. Cryptocurrency is considered a personal use asset if you acquire and use it within a short period of time or directly exchange it for items you personally use or consume.
- The cryptocurrency is considered a trading stock in a business. In this circumstance, trading stock rules apply and not CGT rules.
Fulfilling your cryptocurrency tax obligations:
The ATO provides a list of ordered steps to be followed in recognizing and reporting the CGT applicable to your cryptocurrency holdings. This document can be accessed at the ATO cryptocurrency factsheet and this process has been summarized below.
- Report the disposal of your cryptocurrency. You are required to report the disposal of your cryptocurrency for CGT purposes if you,
- Exchange one cryptocurrency for another.
- Trade, sell or gift cryptocurrency.
- Convert cryptocurrency to a fiat currency.
- Calculating CGT on your cryptocurrency. You must first convert your cryptocurrency purchases and sales into AUD and then calculate the difference between your cost base and capital proceeds.
- Keep records of your cryptocurrency transactions. The transactions you should record include,
- Transactions involved in acquiring the cryptocurrency. These should include receipts of transactions, commission or brokerage fees on the purchase, agent, accountant and legal costs and exchange records.
- Transactions involved in holding the cryptocurrency. These should include software costs in managing tax affairs, digital wallet records and keys and documents showing the date and quantity of cryptocurrency received via staking or airdrop.
- Transactions involved in selling the cryptocurrency. These should include receipts of sale or transfer, commission or brokerage fees on the sale or transfer, exchange records and calculation of capital gain or loss.
If you are unsure of your cryptocurrency tax obligations, please call or email us to discuss with a Macro Team member today.