Cryptocurrency In The Tax World

So Who Pays Tax?

Today, digital currency has become a major topic of discussion including what it is, how it’s changing the world and the ever-looming question ‘do I pay tax on crypto’. Here’s a little insight on how it could apply to you and what to do next!

Summary

There are several different ways of dealing with cryptocurrency. How you hold and transact with it can change the way it’s reported in your tax return and financial reports. Below are some scenarios that could apply to you.

1. Personal Use Asset

Based on ATO rulings, taxpayers are not subject to tax when selling their personal use assets. This also means no capital gains is calculated in your tax returns. Many taxpayers have argued that their purchase of cryptocurrency was purely for private use however, looking deeper into why they acquired the digital currency and how long for has major impacts for tax purposes. The ATO have strict guidelines into whether a purchase of an asset is for private use. They have also made some recent inclusions as to whether based on your personal circumstances, purchasing cryptocurrency falls within this category. 

2. Investment

As a general rule, when you buy Cryptocurrency with the intention of making a profit, this will most likely result in a capital gains tax however, each case varies based on an individual’s circumstance. The ATO in many cases will consider you buying cryptocurrency for investment purposes particularly when the cryptocurrency was purchased during its heavy price spikes during the 2017 and 2018 years. Many factors are taken into consideration when determining how to treat your cryptocurrency transactions for tax purposes including whether you are eligible for certain benefits and discounts. 

3. Business

Trading cryptocurrency in the form of a business can become very complicated and will need expertise advice to determine if this applies to you. Generally, where you hold cryptocurrency for the purpose of buying and selling on a commercial basis, you may be considered running an ordinary course of business. This may mean aspects such as trading stock are applied and calculated into your tax return. When a trading business makes a loss or gain, this can directly affect your overall income including salary and wages and as a result affect your tax refund/payable. 

4. Others That May Apply

• Crypto-to-crypto trading
• Loss or theft
• Chain splitting
• Using crypto for business transactions
• Mining

Limitations

Cryptocurrency has been around for many years however, it’s only attracted the attention of the masses over these past couple of years. As a result, the ATO and other governing bodies are still very cautious on how they can legislate cryptocurrency. It seems most probable that they will continue to make changes depending on how our economy decides to respond to this ever-diverse medium of exchange.

Tax Advice

Knowing what kind of scenario above may leave you scratching your head, please speak to a tax expert in order to get more clarity on your personal circumstances. It’s highly recommended that you sought some advice early, this can allow you more time to set aside money if paying tax at the end of the year is looking likely. Steven Wong Accountants focus on your growth and this means helping you find your best tax position. Stop walking away feeling confused every time you see your accountant and instead, feel confident that you have learnt how to better achieve your financial goals. 

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