Crypto Tax Australia: The Definitive Guide 2023
Cryptocurrency and other digital assets are taxable in Australia. ATO’s Cryptocurrency and Tax Page provides the tax authority on crypto taxes. In this tax guide, we’ll provide you with the ins & outs of crypto tax regulations in Australia and strategies for minimizing your crypto taxes.
Last Updated: May 3, 2023
Cryptocurrency and any digital assets are taxable in Australia. ATO’s Cryptocurrency and Tax Page provides the tax authority on crypto taxes. In this tax guide, we’ll provide you with the ins & outs of crypto tax regulations in Australia and strategies for minimizing your crypto taxes.
The Australian Taxation Office (ATO) has been keeping a close watch on cryptocurrency traders since 2014. In general, HODLing crypto is not taxable. However, it is the gains and income that the ATO considers taxable. Any Australian citizen buying, selling, transferring, mining, staking, airdropping, gifting, or lending cryptocurrencies would probably classify these expenses as income or gains. These should always be reported based on the Australian dollar value of the transaction. While cryptocurrency tax can be very complicated, we can simplify everything by grouping transactions into the general rules below:
Capital Gains Taxes
If you purchase a coin or token and sell (or trade it) for more value than what you paid for it, this is a taxable gain. The key here is that every trade is taxable – selling crypto back into fiat (any government-issued money) or trading one crypto into another. This applies if you purchase a coin, token, NFT, or any other type of financial instrument representing a crypto asset, such as a futures contract. Just like gains are taxable, any capital losses from selling or trading a coin for less than what was acquired are deductible for tax purposes, subject to certain restrictions.
Proceeds from sale – cost basis (purchase price) = taxable gain or loss
Proceeds from sale: If you are converting into fiat, this is the amount of fiat you get for your crypto. If you are converting to another crypto, it is the value of the acquired crypto at the time of the trade.
Cost basis: What you acquired your crypto for – if purchased with fiat, is the amount you bought it for plus any fees on the trade. If purchased with another crypto, it’s the value of the crypto at the time of acquisition plus any fees on the trade.
If you transfer crypto from one wallet to another, the official ATO guidance states that:
“Transferring crypto assets from one digital wallet to another digital wallet is not considered as a disposal as long as you maintain ownership of it. If your crypto holding reduces during a transfer to cover a network fee, the transaction fee is a disposal and has capital gain consequences.”
Any income from crypto is subject to income taxes at the ordinary marginal rate of the taxpayer. The list of taxable crypto events includes (but is not limited to):
- Mining income
- Staking income
- Certain Airdrops
- Liquidity Pool Income
While crypto income can have many forms, the rule of thumb is that if you open up your wallet (or exchange account) and you have more coins/tokens than you had before, then the new coins/tokens received should generally be recognized as ordinary income based on the value of the coins at the time that the taxpayer obtains control of the coins.
Certain exceptions apply such as chain splits (hard forks) and initial allocation airdrops. A crypto project can make an initial airdrop of tokens representing the first distribution of its tokens. Such tokens are the “initial allocation” if the project’s tokens have not been traded prior to the airdrop. In this case, the ATO states that, upon receipt, they will not be considered ordinary income or a capital gain. Only when the tokens are disposed of does a CGT event occur. If receiving new coins results in a nontaxable transaction such as these, your tax basis is /bin/sh in the coins, meaning that when you dispose of them your proceeds will generate a gain for the same amount.
Purchasing with Fiat (AUD)
Purchasing crypto (or any other digital asset similar to cryptocurrencies, such as NFTs) with fiat is not a taxable event. This is true whether the crypto is purchased through a bank account or a credit card transaction. However, considering that you will have to pay taxes when you sell or “dispose” of your crypto, it is crucial to keep an accurate record of the purchase to determine the cost basis of the transaction. Fortunately, Accointing.com will automatically keep track of all this information.
Cost basis of acquired crypto = amount paid for crypto in AUD + fees to acquire
Purchasing with Crypto
Purchasing crypto (or any other digital asset similar to cryptocurrencies, such as NFTs) with crypto or another digital asset is a taxable event as you are disposing of an asset on which you have to recognize a gain or loss.
Taxable gain or loss = proceeds from the sale (fair market value of acquired crypto) – cost basis of crypto given up.
Proceeds from the sale (fair market value of acquired crypto) = cost basis of acquired crypto (relevant for future dispositions)
The acquisition of the new crypto (coin, token, NFT, etc) is not itself taxable, but using another asset to purchase this is the taxable event. This is basically a barter transaction. Using a crypto to purchase another crypto is the same as if you sold the first crypto at its fair market value and immediately used those funds to purchase the new asset. The first transaction would be a taxable disposition in which a gain or loss has to be recognized, and the second transaction would be an acquisition for fiat. With crypto-to-crypto, you are essentially doing both of the above in one transaction. Therefore a gain or loss has to be reported on the asset given up.
HODL & Transfers
Hold on for Dear Life (HODL)
Holding a crypto or digital asset is not taxable. You would not trigger a taxable event until you sell, trade, burn or otherwise dispose of the asset. If you are earning income (rewards, staking, yield, etc.) on this asset, that income is taxable as ordinary income.
Transferring crypto to your own wallet, whether a hot or cold wallet, is not a taxable transaction. As previously mentioned, be aware that if crypto holdings are reduced to cover the network fees for a transfer, the transaction fee is a disposal with capital gain implications. Careful – some tax reports assume that transfers out are taxable as they do not know you are transferring crypto to yourself. Accointing.com will find the possible matches for internal transfers and the user verifies them through the review steps. All you have to do is select the transfer and approve it. This will classify the transaction as non-taxable transfers to yourself and link the tax basis accordingly.
The sale or exchange of any crypto asset is a taxable disposal. Taxpayers must report their realized gain or loss on these transactions on their Annual Tax Return for Individuals or online through myTax (refer to “How to File Your Crypto Taxes in Australia with Accointing.com”). This taxable gain or loss is subject to capital gains tax, the rate of which depends on whether the gain is a short-term or long-term capital gain.
Please note that if the taxpayer is a business, the sales must be reported on that entity’s business tax return.
What counts as a taxable disposal of a crypto asset for Australian taxpayers?
- The sale of crypto for fiat (AUD, USD, Euro, GBP, etc.)
- The sale of crypto for a stablecoin (USDT, USDC, DAI)
- The trade of crypto for another crypto
- The trade of a stablecoin for crypto, another stablecoin or fiat
- The purchase of an NFT with crypto
- The purchase of any goods or services with crypto
In every case, whenever you have a taxable disposal of a crypto asset, you must calculate and report your gain or loss:
Taxable gain or loss = Proceeds from sale – cost basis
Proceeds from sale: The amount of fiat received for the crypto asset sold or the fair market value of the crypto asset acquired in the transaction.
Cost basis: Cost in AUD of the crypto asset disposed of. If the asset was acquired with another crypto, the fair market value in AUD at the time of acquisition.
Every time you trade, sell or dispose of a crypto asset it is a taxable disposal. Even trading one crypto for another, or trades with stablecoins are considered taxable disposals. If it has a different ticker on CoinMarketCap, it is a taxable event. This is also true of assets not listed on CoinMarketCap, such as individual NFTs, liquidity pool tokens or futures contracts.
Tax Authority for Crypto Disposals
According to the ATO:
“You must report a disposal of crypto for capital gains tax purposes. Disposing includes when you:
- exchange one crypto asset for another
- trade, sell, gift or donate crypto assets
- convert crypto to a fiat currency (a currency established by government regulation or law) – for example, to Australian dollars.”
Therefore, when considering how cryptocurrency is taxed, one must look to tax law on property transactions, which can be found on the official Capital Gains Tax page.
Taxation of Short-term capital gains vs long-term capital gains
If you hold your crypto for more than 12 months, your gains will be taxed at a 50% discount as compared to short-term gains. Short-term capital gains will be taxed at your ordinary tax rate, which depending on your income, will range from 19% to 45%. The income tax brackets for 2021 are as follows:
Please note that as an investor, you can either use FIFO, HIFO, or LIFO to calculate capital gains. However, as a trader, LIFO is not accepted. Accointing.com uses FIFO as a default but the tax method can be changed within the tax settings.
Wash Sale Rule
Although the term “Wash Sale” has no precise meaning, with crypto assets, a wash sale occurs when an investor sells a crypto asset at a loss but buys the same or substantially the same asset in a short period of time. The sale and purchase cancel each other out, resulting in no change in the owner’s economic exposure to the asset. This allows the taxpayer to incur a loss to offset a gain already realized or expected to be realized. The ATO has warned that its sophisticated data analytics can identify wash sales by accessing data from share registers and cryptocurrency exchanges. In instances where the ATO identifies such activity, the capital loss is disallowed, which means a greater gain or smaller loss to the taxpayer.
Personal Use Asset Exemption Rule
According to the ATO, if the cryptocurrency you transact with is a personal use asset, a capital gain/loss can be avoided. The crypto asset is considered a personal-use asset whenever it is used to acquire items purchased for less than A0,000 for personal use or consumption. However, this A0,000 personal use asset rule can only apply in the rare instances where the cryptocurrency is acquired and immediately disposed of to purchase personal property or services. If personal goods or services are purchased using cryptocurrency initially intended to be held as an investment, the exemption does not apply and the gain or loss must be recognized. Critical to determining whether it is a personal use asset is the time of disposal of the cryptocurrency. The longer you hold the cryptocurrency, the less likely it is to be considered a personal asset, regardless of whether you eventually use it to purchase personal consumption products.
Scams, Theft, and Losses
Whether you have lost your crypto or got it stolen, a capital loss may be possible to show to the ATO. The authorities would require documents and information to prove the ownership as evidence. Some of the evidence required includes:
- date when you acquired and lost the private key
- the wallet address of the private key
- the amount of crypto at the time of loss or theft
- transactions linking your identity to your wallet
- transactions from a digital currency exchange used to verify your account with your wallet
Donations of crypto to a charity
Gifting cryptocurrencies is considered a disposal due to the original intention to hold the cryptocurrency, even if no money is exchanged. It is, therefore, subject to either ordinary income tax or capital gains tax. Also, remember that even if you donate cryptocurrencies to a deductible gift recipient (DGR) and then claim a deduction, it could be considered a profit-making scheme. The ATO will ask you to keep a record of crypto asset transactions, including the date you donate them and the market value of the cryptocurrency at that time. Donation of crypto assets to DGRs does not usually involve the payment of capital gains tax when:
- The gift is made under a will (testamentary gifts) – however, you cannot claim a tax deduction.
- It is donated under the Cultural Donations Program.
- Crypto assets donated are considered personal use assets.
You can only claim a tax deduction for gifts or donations to organizations that have a status as a DGR. To claim a tax deduction for a gift or donation of a crypto asset, it must meet:
Cryptocurrency taxable income can take on many forms and names, and you may not find guidance from the ATO on all of these. All crypto income is taxable based on the fair market value of the coins/tokens received when the taxpayer obtains control of the asset, unless the transaction type is specifically excluded by the ATO, such as chain splits (hard forks) and initial allocation airdrops.
This applies to mining, staking, interest, rewards, liquidity pool rewards, certain airdrops, lending income, bounty income, node income, crypto for completing quizzes, etc. If you have more coins/tokens than you had before, the new coins/tokens are taxable income unless specifically excluded from taxation, in which case the coins acquire a A/bin/sh cost basis. Adding funds is not considered income as this is a transfer of fiat from your bank or credit card.
Under ATO rules, the type and amount of tax you pay will depend on whether you mine as a hobbyist or as a business. Check this section of the ATO website to find out if you are mining cryptocurrencies as a business.
As a hobbyist, you do not have to declare your income after receiving the mined coins. The mined coins will be subject to capital gains tax on disposal in the future, but will have a A/bin/sh cost basis.
If your mining operation qualifies as a business, you must declare the tokens’ fair market value at the time of receipt. All income you receive from a mining pool/service or your own mining equipment is taxed as ordinary income and will have to be declared on your business income tax return. However, business miners can deduct costs such as equipment, subscription fees, and electricity costs from their taxes.
Income taxes apply to staking rewards. Staking offers cryptocurrency holders a way to put their digital assets to work and generate passive income without selling them, similar to earning interest on a bank account.
According to the ATO, the money value of additional tokens is ordinary income when the tokens are received. You must report the income on your tax return as “other income.” When you dispose of crypto assets earned through staking, you must determine if you made a capital gain or loss. Once you connect your exchanges and wallets to Accointing.com, we will detect staking rewards and aggregate the amount under the “Staking Income” line on your tax report’s “Taxable Income” section.
In most cases, such as when you receive airdrops as part of a marketing campaign, the ATO considers airdrops to be ordinary income and subject to Income Tax at the time of receipt. In addition, if you sell coins or tokens from an airdrop and make a capital gain, you must pay capital gains tax. However, if the tokens acquired are part of the “initial allocation” of a project, i.e., they have not been traded prior to the airdrop, they would not be considered ordinary income or a capital gain. If the project issues these tokens for free, they have a cost basis of zero (A/bin/sh). Since these coins have never been traded, they have no market value at the time of the original airdrop. If these tokens are not free, i.e. you have to pay to receive them, the cost basis of the tokens will be the amount you have paid to acquire them.
Remember that only when you dispose of the tokens does a CGT event occur. If you keep the tokens for 12 months or more, you can benefit from a 50% CGT discount.
Forking and Chain Splits
A chain split occurs whenever two pieces of blockchain have the same history but take different paths for the future.The most popular example is when Bitcoin Cash (BCH) split from Bitcoin (BTC) back in 2017. Holders of the base coin receive an amount of the new coin and the value of this new one is considered neither ordinary income nor capital gain at the time of receipt. Whenever this occurs, the new holding is treated as a crypto investment with a cost basis of A/bin/sh. This means that you do not pay any CGT tax; however, when you dispose of it, you calculate the capital gain and tax accordingly using a A/bin/sh cost basis.
Yield Income from Stablecoins
Stablecoins are cryptocurrencies pegged to the value of an underlying asset, such as Tether (USDT), which is fixed to the . The stability of these cryptos is the unique selling point and preferred payment choice for many employees seeking to be paid in cryptocurrency. In the case that you are receiving stablecoins as income, income tax will be due. In addition, you will have to pay CGT after disposing of the stablecoins if you yealize a capital gain.
Decentralized Finance (DeFi) Taxation
DeFi is used to describe the ecosystem of blockchains, coins, tokens, and decentralized apps (dApps) that operate to provide services to users in a peer-to-peer manner by utilizing smart contracts. The best method to ensure compliance is to examine your specific transactions and determine whether there is a disposal of your token/change in ownership and/or a receipt of income. There is no difference between the taxation of DeFi transactions and CeFi (centralized finance – anything done via an exchange or broker) transactions. The disposition of your token will create a CGT event, whereas receiving income from a platform will result in ordinary income.
- Earning interest from DeFi protocols
- Staking on DeFi protocols
- Yield farming DeFi protocols
- Earning liquidity tokens from DeFi protocols: (depends on whether you are earning new coins or increasing the value of an asset)
- Earning through play-to-earn DeFi protocols
Capital Gains Tax
- Selling or swapping crypto in a decentralized exchange (DEX)
- Selling or swapping NFTs
- Profits from DeFi margin trading and options protocols
- Adding or removing liquidity from liquidity pools
Gas fees related to acquiring an asset are part of the cost basis of the crypto asset you acquired. Gas fees that cannot be directly associated with the acquisition of a crypto asset are not technically deductible under the current guidance. However, a case can be made that they are deductible costs to acquire your assets. If you have incurred significant gas fees, it is recommended to find a tax advisor to help you navigate this.
Liquidity Pools Taxation
There are several taxable events when providing liquidity in a liquidity pool that taxpayers must keep in mind.
- When you exchange a coin, token, or pair for a liquidity pool token (LP token), this is a taxable event. Your gain or loss is based on the gain or loss in the coins or tokens given up for the LP token. Your tax basis is the original cost of those coins, and the proceeds are based on the fair market value of the LP tokens acquired.
- The rewards are taxable upon control based on the value of the coins, same tax treatment as mining, staking, or any other type of income.
- When you trade the LP tokens back for the original tokens, this is another taxable event similar to the first transaction. You must report your gain or loss based on the tax basis of the LP tokens relative to the fair market value of the coins or tokens received back when you make the trade.
Non-fungible Tokens (NFTs)
Most of us have heard about NFTs, whether from celebrities like Steph Curry, Jimmy Fallon, or Snoop Dogg owning one, teenagers getting rich from them by selling their own NFTs, or NFT enthusiasts getting scammed by the many bad actors in the space. But what exactly are NFTs, and how are they taxed?
NFT stands for non-fungible token, meaning that each of these tokens is unique, and no two are exactly alike. This is in contrast to what most of us think of as cryptocurrencies, such as BTC or ETH, which are fungible tokens, meaning each BTC and each ETH is exactly like the other. An NFT is essentially a one-of-a-kind token on the blockchain to which you can embed any digital media file, such as a picture, song, or movie.
NFTs are tokens that run on top of a smart contract layer one blockchain, such as Ethereum, Solana, or Cardano. Think of the layer one blockchain as an operating system such as iOS or Android, while the NFTs are tokens launched on each operating system. To purchase these NFTs, users must generally use the coin of that blockchain – this means that if you want to buy an NFT on Ethereum, you will need some ETH to purchase the NFT. Transaction fees for NFTs also generally use the coin of the blockchain on which the NFT collection is.
While most of the NFTs that we have seen so far traded on Open Sea or Magic Eden are collections of digital pictures, there are many other use cases, and we are very early in discovering the potential of NFTs. Some of the use cases that have many in the industry excited are:
- Musicians, writers, and other content creators can reach their consumers directly, cutting out record labels and other intermediaries.
- Marketers and companies will have direct access to their consumers’ wallets and will be able to understand their behaviors better.
- Real-world assets can be linked to an NFT to efficiently prove ownership and add liquidity to markets.
- Sports moments and other collectibles – the new trading cards with platforms such as NBA Top Shot.
- Purchasers can always resell the NFT, in which case a sales royalty will go to the original creator.
- The authenticity of NFT can always be verified with 100% certainty via the blockchain. When you purchase the original drawing of an artist, you can verify that the NFT is not counterfeit.
- Documents can be turned into NFTs to store on the blockchain and prove authenticity.
- NFTs can disrupt the world’s supply chains by enhancing the information flow between parties in the supply chain and providing a record of authenticity traceable by all parties as needed. This could help fight counterfeit markets by being able to quickly verify products’ authenticity via the blockchain.
The taxation of NFTs depends on a taxpayer’s circumstances, use of the NFT and reasons for holding and transacting with the NFT.
When purchased as an investment or traded similar to other crypto assets, CGT will apply in the same way that it would apply to other crypto assets. NFTs are taxed as property, and gains or losses from the disposition of NFTs must be reported. Each NFT is considered a different asset for tax purposes.
Purchasing an NFT is generally a nontaxable event as you are acquiring an asset. If you purchase the NFT with a cryptocurrency such as ETH or SOL (as it is commonly done on Open Sea and Magic Eden), you will have a taxable gain or loss from the disposition of the cryptocurrency used to purchase the NFT; this works the same as if you are trading one crypto asset for another.
When you sell or trade an NFT, you will have a taxable gain or loss from the disposition of that NFT.
Taxable gain or loss = Proceeds from sale – cost basis
Proceeds from sale: The amount of fiat or crypto (in AUD) received for the NFT sold
Cost basis = amount paid for the NFT in AUD (whether fiat was paid or the AUD equivalent of the crypto paid for the NFT) + fees to acquire
Some NFTs provide holders with different types of income. For example, you could get an airdrop of an NFT or a token for holding a certain NFT. You may also be able to stake your NFT to receive a specific token in return.
If you receive an airdrop of an NFT or token, you must recognize this as income based on the fair market value of the NFT or token received (unless it falls within the scope of an initial allocation airdrop). If you earn tokens from staking, this is taxed the same as staking any other coins – you recognize it as income based on the fair market value of the tokens at the time of receipt.
But what happens when the NFT or tokens have no listed value? What if you don’t want these airdrops (many of which are scams)? What can be done?
- If an airdrop of an NFT has no value or is a scam, you can report for A/bin/sh or a nominal amount and send it to a burn address, then dispose of it for A/bin/sh proceeds and A/bin/sh basis (or nominal amount reported as income), for no impact to your tax return.
- If an airdrop of an NFT or token has more than a nominal value, then it is unlikely that a taxpayer would refuse this and would generally choose to trade and keep the funds, in which case the transaction should be taxable.
- If the taxpayer does not want an airdrop of value and wants to exclude this from their income, there is no guidance for this situation. In this case it is recommended that you contact your tax advisor.
The above principles apply to purchasers, traders, and investors of NFTs, not to creators. An NFT creator is likely in a trade or business, and has a much different set of taxation principles guiding their path.
Trade or business
A creator could create an NFT as a hobby by using copy & paste tools, create a derivative, and put little to no effort into the project other than creating and launching, which would not constitute a trade or business. However, most successful NFT projects are run as trades or businesses, an activity for profit engaged continuously and regularly. Most NFT projects have teams consisting of a general manager, a designer, a developer, a community manager, and employees hired from a for-profit company. They are in the business of creating and selling NFTs and related products (such as merchandise).
Being a trade or business allows an NFT project to deduct all business expenses such as (but not limited to): wages, equipment, rents, leases, bad debts, interest, employee benefit programs, supplies, utilities, advertising, legal, accounting, licenses, certain taxes and even some meals. There are three rules in order for a business expense to be deductible:
- The expense must be for your business, not for personal purposes.
- For any expenses that have a business and personal component, only the business portion can be deducted.
- You must keep records to prove the expense.
The taxation of the income of an NFT creator is based on their gross revenue. If their NFTs are sold for fiat, this is the amount in AUD they are sold for. If the NFTs are sold for another crypto, this would be the value in AUD of the crypto asset received in exchange.
It is generally advised to work with a tax professional if you have any type of trade or business, as the complexities of business taxes and forms can be a pitfall for co-founders. If you have an NFT business, we recommend working with a tax professional who understands the cryptocurrency and NFT industries.
Crypto Trading: Futures vs. Margin Trading
Easy to confuse as both allow you to use leverage to generate a greater return on your capital, there are basic differences between the two products, which should lead to different tax outcomes. While there is very limited guidance from the ATO on this topic, based on this answer from June 2020 it appears that income from margin and futures trading would be ordinary income and not gains subject to CGT. It is also worth noting that based on this answer, trading stock rules apply, not CGT rules.
When an investor trades with margin on a crypto platform, they are borrowing funds to have greater amounts of capital for their positions. Margin trades are placed in the spot market.
When an investor trades a futures contract, they are obtaining contracts to buy or sell an asset at a given price in the future. These contracts also let investors amplify their gains by similarly using leverage as margin trading, where the broker would only require a fraction of the borrowed capital as collateral, the result being that while gains are amplified, liquidations can occur much faster if the market goes the wrong way. Future trades are placed in the derivatives markets and generally have access to higher leverage than margin traders.
When considering your crypto taxes, it is essential to proactively plan to achieve a lower tax liability. Whether you need to proactively reduce your tax liability for the current year or simply want to plan ahead, it is important to be cognizant of the tax implications that every trade can have and make sure to set aside the money you may need to pay for these taxes when they are due.
Tax Loss Harvesting
Given the volatility of the markets and how easy it is to trigger a taxable event, such as pressing a button from a mobile app, you can see how easy it can be to plan and sell your cryptos at a loss to claim the tax loss. This is known as tax loss harvesting.
Tax loss harvesting essentially means selling cryptos (assets) with unrealized losses in order to realize those losses and take them on your tax return. Since we know that losses can offset capital gains, tax loss harvesting can actually save you tax money.
What’s the catch? You will take a lower tax basis in any new asset purchased. Therefore any future gains will be greater. It is generally better to lower today’s taxes than tomorrow’s.
As previously mentioned, you should be cognizant of the wash sale rule and not purchase back any sold assets in the immediate future. Other countries such as the USA and the UK have a 30 day window for purchasing back assets. While there is no specific guidance on the time a taxpayer must wait to purchase back assets in Australia, a rule of thumb is that if you sell your assets solely to reduce your taxable gains, you should not buy back these assets anytime soon. If you sell your cryptos at a loss, and wish to remain invested in the markets, buy different coins or tokens to be safe.
Planning for Long Term Capital Gains over Short Term Capital Gains
The easiest way to minimize capital gains taxes on cryptocurrencies is to hold them for more than a year before selling them, which reduces the tax by 50%.
There are two instances in which this approach is not recommended:
- Short-term taxable losses, generally speaking, are as valuable as long-term taxable losses. This is because while the losses do retain their short or long-term character since you can net all losses against all gains, capital losses will always help reduce taxable capital gains. However, you can’t deduct a net capital loss from your other income. In the case of a net capital loss, you can carry this loss forward to other tax years.
- If your coin just went 1000X and there is a chance it goes -90% by the time it becomes a long-term capital gain for you, it is better to pay short-term capital gains taxes on A0,000 than to pay long-term capital gain taxes on A,000. Always balance the risk of the coin you are holding, and do not only plan your sales for tax reasons.
Sell Crypto in Years of Lower Income
This may not be an option for all, but some taxpayers may go through different tax brackets between years, in which case their capital gains tax rate may vary substantially. Whenever income fluctuates significantly, careful consideration must be given to marginal tax rates applicable, along with the macro market outlook of sell now vs. sell later.
Unlike commonly believed by many, cryptocurrency transactions are very rarely private and anonymous. Anyone with a blockchain explorer, such as blockchain.com, can see all your transactions. Even wallets without KYC must transact with accounts that are KYC’d at some point, providing the link to the taxpayer’s identity. Think that using a mixer will hide your trail? Think again, as tools such as AnChain, Chainalysis, Coinfirm, and Crystal can provide forensic data to track down almost any transaction on the blockchain.
Cryptocurrency is not private, and gains from trading cryptocurrency are taxable and subject to capital gains taxes, just like cryptocurrency income is taxable as ordinary income. The ATO has been collecting data, and it is always best to report and be safe than sorry. Remember, willful tax evasion is a crime.
The ATO is very clear in their guidance when they state that:
“You need to keep details for each crypto asset as they are separate CGT assets. Keeping good records is essential for meeting your tax obligations.”
We recommend keeping all of the following records indefinitely:
- Hot or cold crypto wallet addresses containing crypto transactions
- Other records, such as transaction history files from exchanges (and wallets)
- Bank statements or other records showing the deposits and withdrawals of fiat currency
- Transaction history containing all of the following information:
- Type of crypto assets
- Date of every transaction
- Type of transaction
- Units of crypto and value in AUD at the time of the transaction
- The cumulative total of assets
Fortunately, this information will be automatically kept for you with Accointing.com. You should keep a copy of your tax report, all other files provided (such as the full data set), and a copy of any CSV or excel files uploaded to Accointing.com. If you have used any API and blockchain connections, keep the blockchain address and API keys. In case you ever get audited, you want to be able to recreate the results.
The tax year in Australia runs from July 1 to June 30 of the following year. If you are an individual filing your own tax return for July 1, 2021 – June 30, 2022, the deadline is October 31, 2022.
If you hire a registered tax agent or accountant, they will generally have special lodgment schedules and can file returns for clients later than October 31. Speak to your tax advisor if you are unsure of your deadline.
Tax Payments & Penalties
The ATO has been proactively prioritizing crypto and ensuring that taxpayers appropriately report their crypto taxes and pay any tax liability due. Penalties can be severe for tax evaders.
Accointing.com not only helps you keep track of your tax liability throughout the tax year, but it also assists you in correctly calculating and reporting your taxes to the ATO. It even helps you in keeping excellent records for the ATO in the event of a crypto tax audit.
In Australia, if you are filing a tax return as or on behalf of an individual, there are two ways to report crypto assets: online, through myTax, or via paper forms. Whatever method you use, your Accointing.com report contains all of the information you need to file your taxes. All you need to know is where to enter those figures. For more information, go to “How to file your taxes in Australia with Accointing.com”
Connecting to Accointing.com
For Accointing.com to provide you with an accurate tax report, you must connect all your crypto wallets and crypto exchanges, including cold storage wallets. Your crypto taxes depend on all of your transactions, so if you do not connect a wallet, your gains and losses will be distorted.
Is crypto tax software the only way? While you could theoretically keep track with a spreadsheet, this would be extremely time-consuming and difficult to do accurately. Accointing.com makes this easy for you by helping you connect all your exchanges and wallets and generating the most accurate tax report for all your crypto transactions.
I would rather keep my hardware wallet’s public address secret from the tax authorities – do I need to connect this? This is a common misconception that many crypto investors have. They would prefer not to connect their public address to keep this “secret.” There is actually a higher risk of audit and issues with the tax authorities if you do not connect your hardware wallets. The tax authorities can easily obtain information from any crypto exchange with a full history of withdrawals and wallet addresses. These exchanges also have KYC information, meaning the direct link to your wallet can be easily made. If you do not connect this wallet, the crypto sent will look as if you are spending it (making it taxable disposals) or as if you are trying to hide something. For this reason, it is much easier for purposes of having a clean audit trail to connect your wallets.
One last reminder from your friends at Accointing.com – please make sure to plan ahead and start to consider your crypto taxes well ahead of tax season. If you only use one or two exchanges, connecting your wallets and correctly classifying your transactions may not take long, but for most crypto users with 10-20 exchanges or wallets, you do not want to wait until the final minute. Research the tools that best support your crypto needs and figure out a plan before tax season. Always best to prepare early for taxes.
The information contained in this guide, including any supplemental materials, is for general information purposes and does not constitute financial, investment, legal or tax advice. The present content is not intended as a thorough, in-depth analysis, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please consult your tax advisor.