Tax Consequences on Crypto Trading for Australian Residents.
Being a Tax Accountant as well as a forex and cryptocurrency trader in Australia, I am constantly asked how cryptocurrencies are taxed especially after the demise of Bitconnect. Although previously there has been a lot of uncertainty around the taxation of cryptocurrency, the Australian Taxation Office (ATO) are beginning to wise up.
If we start with the basics, there are two type of losses when talking about investing. There are losses made on capital account and those made on income account. The main difference is that losses made on capital account can not be offset against other income for the period where as losses on income account can. Clearly those investors who have lost money through Bitconnect and cryptos are hoping that their losses are on income account. The sad thing is, these losses are of a capital nature. Therefore, must be carried forward to later years and offset against future gains on investments. Which we are all hoping will happen if the so called bull run on Bitcoin takes place.
As per the ATO website a Capital Gains Tax (CGT) event occurs when you dispose of your cryptocurrency. A disposal can occur when you:
- sell or gift cryptocurrency;
- trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency);
- convert cryptocurrency to fiat currency like Australian dollars; or
- use cryptocurrency to obtain goods or services.
At present only capital gains made from personal use assets can be disregarded. For a cryptocurrency to be classed as a personal use asset there are certain points to consider.
- Was the crypto asset acquired for less than $10,000?
- The duration of ownership - the longer an asset held the less likely the asset to be classed as a personal use asset.
- The nature of the subsequent transaction - e.g., the cryptocurrency was used to purchase concert tickets.
An important side note is that if a cryptocurrency asset is classed as a personal use asset not only are the gains disregarded but the losses are as well.
Cryptocurrency is not a personal use asset if it is acquired, kept or used:
- as an investment
- in a profit making scheme, or
- in the course of carrying on a business.
For most of us holding cryptocurrency, any CGT event that would take place would be on capital account as we are holding as an investment or in a profit making scheme of which Bitconnect may fall within these categories.
My advice for now, would be to record all your transactions regarding cryptocurrency so to be able to offset those losses against future investment gains. I am sure that there will be many more questions regarding other areas such as why Bitconnect losses are on capital account to what are the tax consequences if you lose your private key. I will attack these questions along with any questions left in the comments in future articles.
