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Cryptocurrency, such as BitCoin, LiteCoin, Stellar and EOS has hugely increased in popularity this financial year. You might have invested in in some BitCoin yourself, or maybe you work in the cryptocurrency business - but have you considered what to do about it at tax time?
Cryptocurrency is a digital asset, and operates independently of government and major banks. Because of this, its value and trade is constantly changing and evolving, often faster than we can keep up with. It also means that the Australian Tax Office (ATO) doesn't consider it as 'money'.
It is important to think about how tax works in relation to BitCoin or other cryptocurrencies, and many who have invested may not have considered this aspect. If you buy or sell cryptocurrency, be sure to keep a clear record of all trade, as this will make it immensely easier to keep track of once July 1st comes around.
In the eyes of the Australian Tax Office (ATO), cryptocurrencies are neither Australian nor foreign currency and are not treated as such. Instead, the ATO will treat BitCoin (and other similar currencies) as an asset, specifically property, for the purposes capital gains tax (CGT).
If you are exchanging your cryptocurrency for fiat currency like Australian dollars, or using it to pay for goods and services, a CGT event will occur. This means that if you make a capital gain on an exchange, you can be taxed. Exchanging one cryptocurrency for another is also subject to tax.
If you trade cryptocurrency as an investment, any gains you make will also be subject to tax. Cryptocurrency investments are treated in a similar way to stocks, and are subject to capital gain tax. When reporting your portfolio at tax time, be sure to include any an all of your cryptocurrency portfolio.
If crytpocurrency is acquired as a personal use asset, it may not be subject to tax, if it is only used to purchase items for personal use or consumption. Be very wary of this however, as using cryptocurrency as an investment, for business, or to gain profit will disqualify it from being classed as a personal use asset.
If you own a business that deals with cryptocurrency, for example, trading, mining, or exchanging BitCoin, any profits that you make will be taxable as any other business. You may be able to claim deductions as with any other business. The ATO requires that you value your profits in Australian dollars when reporting any income and profits made through the trading, exchanging, mining of cryptocurrency.
You can read more about taxing cryptocurrencies on the ATO website.
Happy trading!
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