Tax Time With CryptoCurrency In Australia
IT'S TAX TIME IN AUSTRALIA!
Yes its that glorious time of year when we have to hand over some of our hard earned to the government.
But this year more than any other, thanks to Crypto's meteoric rise, there is a lot of confusion about how to treat our 'Crypto gainz' for tax purposes.
Despite the recent good news about the removal of GST from Bitcoin, there is actually no change to its treatment for income tax purposes.
Lets have a look at what the Australian Tax Office(ATO) has to say on the matter.
For the sake of easier reading i will use the word 'Bitcoin', but the laws apply equally for whichever CryptoCurreny you hold.
USING BITCOIN TO PAY FOR PERSONAL TRANSACTIONS
Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.
So if you have spent less than $10,000 on purchasing your Bitcoin in the last financial year, any gain you made will be exempt from having to pay Capital Gains Tax, providing that it is for personal use and not as part of a business. If you have multiple uses for your Bitcoin, the ATO recommends getting a private ruling on whether to class it as personal use or not.
"But 1 Bitcoin isn't worth $10,000(yet)!" I hear you say.
Thats where this clause comes in:
108-25(2) The set of *personal use assets is taken to be a single *personal use asset and each of your *disposals is a disposal of part of that asset.The ATO is saying here that ALL of your Bitcoin together is classed as a single asset. So you cant claim the CGT exemption on each Bitcoin you own.
NOT PERSONAL USE? SO CAPITAL GAIN OR ORDINARY INCOME?
In the case of an isolated transaction that is not carried out as part of a business operation:
the Commissioner considers that a gain will generally be ordinary income where the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and the transaction was entered into in carrying out a commercial transaction.And what makes it a commercial transaction?
It depends on the size and intent of the investment. If you only intend to trade with it to make a profit, and are not going to use it to buy goods or services, then it will be classed as a commercial transaction and treated as ordinary income.
On the other side:
where a taxpayer mines a small amount of bitcoin as a hobby and after two years decides to sell the bitcoin for a small profit in order to purchase a more stable investment item, the gain will be assessed under the CGT provisions, not as ordinary income. 
OH GOOD ITS EASY, SO THERE'S NOTHING TO WORRY ABOUT?
Well, no.
It all depends on how you personally use your Bitcoin, and you may need a private ruling on your particular situation.
Go see a Certified Accountant. They are the ones with the knowledge and experience to cut through the ATO's jargon, and apply it to YOUR specific needs.
Hopefully this article has given you a little bit of an overview of what to expect when you do your taxes this year.
Thanks for reading.
References:
- https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia---specifically-bitcoin/
- http://law.ato.gov.au/atolaw/view.htm?DocID=TXD/TD201426/NAT/ATO/00001
- http://law.ato.gov.au/atolaw/view.htm?locid=%27PAC/19970038/108-25%27&PiT=99991231235958#108-25
Does anyone have any clarity on the personal use clause when using bitcoin debit cards as an intermediary? For example, if I use a CoinJar Swipe card, technically, I am selling my bitcoin for AUD funds on the card. So would that be classed as selling my bitcoin for cash (and then making me liable for CGT on an investment)?
The wording they use is "proceeds from the disposal of the Bitcoin." So whether your selling Bitcoin for cash or goods, it is treated the same and triggers a CGT event. If the swipe card is for personal use(ie. not used for a business) and you started with less than $10,000 worth of Bitcoin, you should be covered by the exemption.
I started with less than $10,000 worth of bitcoin, but I bought a few years ago, so it is worth more than that now.
So, the use of the proceeds is the pertinent fact. Hence, using a Swipe card to buy groceries, for example, it would be easy to show that it is personal use. What would be less clear would be if one sold bitcoin for cash on Local Bitcoins, because it would then be relevant what the proceeds are used for? How would the ATO view buying 10 bitcoin for $100 each and then selling for $3000 each three years later and just banking the money? They might argue that was intended as an investment and disallow the personal use exemption even though the cost base was less than $10,000?
That CGT exemption is only for Bitcoin purchased in the last financial year. Older holdings would come under a different rule.
And as for trading between cryptos? I believe any gain would be classed as income and taxed accordingly.
Best to consult an Accountant on your specific situation either way.
In your linked ATO reference, it states:
So, it would appear not just to apply to the current FY, unless I'm reading it wrong.
I would think the trading between cryptos would loose the ability to claim personal use and would trigger CGT events if you are an investor and be classed as purchasing and disposing of inventory if you are carrying on a business.
But I'm not accountant, so please don't rely on this.
And for the real can of worms, what about exchanging bitcoin for steem or ethereum? Does that trigger a CGT event and where is the line between investing in cryptocurrency, carrying on a business of cryptocurrency trading, or just having a hobby playing with "Monopoly money"?
It is all speculation without a private ruling, but it would be interesting to see some test cases and examples.
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Basically, can I assume that crypto is recognised by the Australian Government as legal tender?
They are treating it as a currency for tax purposes. I don't think technically it can be called legal tender. The government is still scrambling to work out the laws to define and regulate it. Fintech is advancing much faster than lawmakers can pass laws.
Useful info and yet still confusing. I hate the stupid ATO!
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