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This article aims to serve as a complete guide on how to calculate and pay taxes on cryptocurrency (for example Bitcoin and Ethereum) for individuals in Australia. Whether it’s your first time declaring taxes on cryptocurrencies or you are an experienced crypto evangelist, you should find this guide useful. In this guide we will be covering:
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Important Dates
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How cryptocurrencies are taxed
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Detailed information about different transaction types
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How to submit your tax report to the ATO
This guide will be updated and maintained on a regular basis to account for changes made by the local tax authority (Australian Taxation Office) and for new types of transactions. In the event that you find any errors or outdated information, it would be greatly appreciated that you let us know by sending an email to [email protected].
Any tax-related information provided by us is not tax advice, financial advice, accounting advice or legal advice and cannot be used by you or any other party for the purpose of avoiding tax penalties. You should seek the advice of a tax professional regarding your particular circumstances. We make no claims, promises, or warranties about the accuracy of the information provided herein. Everything included herein is our opinion and not a statement of fact.
Important dates 2021-22
30 June 2021 - Official end of the 2021 Fiscal Year.
1 July 2021 - The Australian Tax Office begins to process tax returns from the 2021 fiscal year.
31 October 2021 - Deadline for filing your own tax return.
31 March 2022 - Deadline for filing your tax return through an accountant.
How cryptocurrencies are taxed in Australia
There are two potential types of taxes that you need to consider every year you declare taxes on your cryptocurrencies. We will discuss both and how they are applied in this section.
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Capital Gains Tax (CGT)
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Income Tax
It is also important to understand whether you fall under the category of an Investor or Trader. How taxes are calculated will vary depending on the two classifications. This guide will be based on how taxes are applied to Investors, which is the category most retail crypto investors fall into. If you are unsure which category you fall under, please consult a tax professional.
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Investor: Typically interested in buying cryptocurrencies in the long-term to build wealth.
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Trader: Typically mine or trade crypto in an organized, business-like manner. A few signs that suggest you may fall into this category include a focus on short-term profits, dealing with large volumes, having an ABN number, dedicated office space etc.
Capital Gains Tax
Cryptocurrencies are generally treated as CGT-assets (assets subject to capital gains tax) by the Australian Taxation Office. This means that any form of the sale of Bitcoin or other cryptocurrencies must be reported as a capital gain. We will talk though the long list of detailed scenarios that involve capital gains tax, but in essence, expect to declare and pay capital gains tax on your cryptocurrencies if you have:
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Sold cryptocurrency
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Exchanged cryptocurrency for a fiat currency (e.g. USD or AUD)
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Traded one cryptocurrency for another
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Gave a gift
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Bought goods and/or services (excluding personal use assets)
In Australia, the tax paid for capital gains is the same as the income tax rate, so it must be added to your assessable income. To find your bracket, you may consult the tables below:
In general, your overall assessable income is given by your income + capital gains - deductions.
Calculating Capital Gains Tax: The ATO requests that individuals keep track of and indicate which assets they have sold at a given time. Thus, you are free to use the FIFO (first in, first out) or LIFO (last in, first out) accounting method for your cryptocurrencies. Divly supports both methods. To correctly calculate gains, you need to factor in the cost basis of your cryptocurrencies:
The cost basis of cryptocurrency in your possession will be the value of the coins at the time you receive them, in AUD. The cost basis includes the money paid to purchase the cryptocurrency and associated transfer or transaction fees. It is very important to calculate the cost basis properly; if you are in doubt, using an automation tool like Divly is best.
Profit / Loss = Price you sold for - cost basis
Note that if you have held onto your cryptocurrency for 12 months or longer, your capital gains are eligible for the CGT Discount. The discount method allows you to discount capital gains by 50%.
Capital losses can be used to offset gains from current or future financial years. However, you cannot use capital losses to offset capital gains that occurred in previous years.
Submitting Capital Gains Tax: Information regarding how to submit your capital gains tax can be found at the end of this guide.
Income Tax
If you earned cryptocurrency for some work and/or engage in commercial mining, professional trading, forging cryptocurrency as a business, or business-related crypto transactions, your gains from cryptocurrency are classified as income. If you decide to keep the cryptocurrency that you received, then you will need to pay capital gains taxes on any profits or losses incurred when you sell them. The cost basis in this case would be equivalent to the amount you declared in your income tax return (the value of the cryptocurrency in local currency at the time of acquisition).
Calculating Income Tax: Simply sum up the income from the different transaction types that contribute to income tax. Together with capital gains, your income will be subject to the standard Australian tax according to your income bracket.
Submitting Your Income Tax: Information regarding how to submit your capital gains tax can be found at the end of this guide.
Detailed information on different transaction types
Certain transactions trigger the two different types of taxation, which will be relevant towards properly classifying each cryptocurrency-related activity. Below is a master list for your reference; we will go through each in detail in this guide. Each transaction has an associated tax event and the corresponding label in Divly for those using our service to automate their tax reporting. For the table below, CGT = Capital Gains Tax.
| Transaction Type | Tax Classification | Divly Label |
|---|---|---|
| Buy crypto | None | Buy |
| Buy crypto with fiat | None | Buy |
| Sell crypto | Capital Gains Tax | Sell |
| Sell crypto with fiat | Capital Gains Tax | Sell |
| Trade crypto for crypto | Capital Gains Tax | Traded crypto |
| Initial Coin Offering (ICO) | Capital Gains Tax | Traded crypto |
| Personal Use Asset | None | Personal Use (Australia Only) |
| Purchase goods & services with crypto | Capital Gains Tax | Goods/Services |
| Pay trading fee with crypto | Capital Gains Tax | - |
| Pay transfer fee with crypto | Capital Gains Tax | - |
| Transfer crypto between your own wallets | None | Transfer |
| Lost or stolen crypto | None | Lost/Stolen |
| Give crypto as a gift | Capital Gains Tax | Gifted Away |
| Receive crypto as a gift | None | Received Gift |
| Donate crypto | None/Deductible | Donation |
| Airdrop | Income Tax | Airdrop |
| Hard Fork | None | Fork |
| Mining | None/Income Tax | Mining |
| Lending | Income Tax | Loan Interest |
| Staking Rewards | Income Tax | Staking Reward |
| Reward | Income Tax | Reward |
| Income from other activities | Income Tax | Income |
| Margin Trading | Capital Gains Tax | Realized Profit/Loss |
| Futures / Derivatives Trading | Capital Gains Tax/Income Tax | Realized Profit/Loss |
Buy Crypto / Buy Crypto with Fiat
There are no taxes involved when buying crypto. However, you need to ensure that you keep track of the price you paid for it as part of the cost basis. If you purchased the crypto in a foreign currency (e.g. USD) make sure to convert it to the value in AUD on that day.
Sell Crypto / Sell Crypto for Fiat
Selling cryptocurrency will always require you to declare capital gains tax whether it’s at a profit or loss. Once again, it’s important to calculate the selling price in local currency (AUD) at the time of sale. Make sure to use a consistent method for calculating your cost-basis (such as FIFO).
Trade Crypto for Crypto
In Australia, trading one cryptocurrency for another is a capital gains tax event. You must pay capital gains on the cryptocurrency you sold in terms of the AUD you sold it for at that time. For example, if you sold 1 Bitcoin for 10 Ethereum, then the selling price is the value of 10 ETH in AUD. In other words, imagine that you sold Bitcoin for AUD, and then used that AUD to purchase Ethereum.
The ATO makes it clear that you should use the crypto that was acquired to calculate the sale price in local currency (AUD). The only exception is when the crypto you received can't be valued. In that case use the crypto that was sold to calculate the sale price.
Stablecoins are considered to be cryptocurrencies and gains are also taxed when you dispose of them. Though gains are typically minimal since fiat currencies are fairly stable relative to each other.
Initial Coin Offering (ICO)
An ICO is when you invest your crypto (usually Ethereum) in a new project that in turn provides you a token that represents that project. Though no guidance has been explicitly issues by the ATO with regards to coins received from ICOs, such exchanges are likely best filed similar to trading cryptocurrency, where capital gains tax is applied to the crypto you sent, and a cost basis is added to the new token at the same price.
Crypto as a Personal Use Asset
If you acquired and used cryptocurrency within a short period of time to purchase items for personal use or consumption, you may qualify to designate up to 10,000 AUD of cryptocurrency as a personal use asset. Crypto is not a personal asset if it is kept / used mainly:
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As an investment
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In a profit-making scheme
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In the course of carrying on a business
While the ATO does not provide explicit, quantified standards for classifying crypto as a personal use asset, in general, the longer crypto is held, the less likely it will be a personal use asset. The time of disposal determines the relevant time frame.
If eligible, this 10,000 AUD of cryptocurrency is disregarded for CGT purposes; capital losses for this amount are also disregarded.
The ATO can be quite strict regarding what classifies as a personal use asset. Unless your crypto is purchased and disposed of the same day, it will likely be classified as a CGT event as per below. Be careful when claiming personal use assets, the burden of proof will fall on you if the ATO investigates it.
Purchase Goods & Services with Crypto
In cases where your cryptocurrency is not designated as a personal use asset, such as after holding crypto for a long time you purchase a good (e.g. computer, Amazon gift card) or pay for a service (e.g. VPN service), then you must pay capital gains tax on the crypto you spent. This works the same as selling crypto for fiat: the selling price is what the same good or service costs in AUD.
Pay Trading Fees / Transfer Fees in Crypto
On some exchanges, typically when you trade crypto for crypto, the trading fee will be paid in crypto. In these cases you need to convert the crypto you paid for the trading fee into your local currency and then add it to the price of the crypto you are purchasing to determine its cost basis for a future capital gains tax event. This can become quite tedious if you have many trades.
Transferring crypto between your wallets for free does not trigger a tax event. However, if there is a transfer fee paid for in crypto, you are expected to pay CGT on the gains you made on the crypto that was used to pay the transfer fee. You can also add the transfer fee cost to the cost basis to lower future CGT taxes.
Transfer Crypto Between Your Own Wallets
Transferring crypto between your own wallets is not a taxable event (this includes sending crypto to your account on an exchange).
Lost or Stolen Crypto
If you lost the private key to a cryptocurrency wallet or your cryptocurrency was stolen, you may be able to claim a capital loss. The ATO requests that you be able to provide the following kinds of evidence:
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when you acquired and lost the private key
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the wallet address that the private key relates to
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the cost you incurred to acquire the lost or stolen cryptocurrency
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the amount of cryptocurrency in the wallet at the time of loss of private key
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that the wallet was controlled by you (for example, transactions linked to your identity)
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that you are in possession of the hardware that stores the wallet
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transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.
Give Crypto as a Gift / Receive Crypto as a Gift
Giving cryptocurrency as a gift is the same as selling them, triggering a capital gains tax event.
Receiving cryptocurrency as a gift does not trigger a tax event. However, if you later sell cryptocurrency that you received as a gift you trigger a CGT event. In this case the cost basis would reflect the value of the crypto in local currency on the day you received it.
Donate Crypto
Donating cryptocurrency to registered charities is a non-taxable event. You can claim the donation as a deduction on your tax return, as you would when donating fiat currency to charity.
Airdrop
In Australia, an airdrop counts as ordinary income at the time it is derived. If you choose to later sell the tokens you received in an airdrop, the cost basis of the tokens are the market value at the time they were derived.
Hard Fork
In a fork, if the original chain still exists, the new forked asset has a cost basis of zero, and you must pay CGT when you dispose of the new asset. In this case, the original asset is not impacted.
If the original chain is abandoned, any loss of the original coin counts as a 100% capital loss.
Detail examples can be found on the ATO website.
Mining
If you classify as a hobbyist, the cryptocurrency you earn is non-taxable at the time of mining. In this case, you must report capital gains with zero cost basis when selling.
If you mine professionally (for or as a business), the cryptocurrency you receive triggers income tax. You can write off mining expenses (such as electricity and hardware) but you will fall into the trader category and not be eligible for the CGT discount.
Lending Your Crypto
The interest you receive from lending is categorized as income tax. If that interest is given in cryptocurrency, you must record its cost basis for calculating CGT in the future.
Staking
Any staking rewards you receive are ordinary income and the AUD value of the cryptocurrency you receive must be included in your assessable income. The cost base of these rewards is the market value at the time you receive them.
Rewards (e.g. referral)
Similar to an airdrop, any crypto you receive as a reward through some action is taxed as income. The cost basis of the tokens are their market value in terms of AUD at the time you received them.
Income From Other Activities (e.g. freelancing, salary)
If you have been paid in cryptocurrency for your work or a favor you completed, then that needs to be declared as Income Tax. The cost basis of the crypto you received is the same value you declared as income.
Margin Trading
Margin trading involves borrowing to take leveraged positions on crypto. Often the outcome of the trades are provided as realized profit or loss after margin fees are accounted for. While the ATO has not explicitly stated rules with regards to margin trading, it is likely taxed as any other CGT event if you dispose of your token.
Futures and Derivatives Trading
When you trade crypto derivatives, you do not own the cryptocurrency itself. While the ATO has not explicitly stated rules with regards to derivatives trading, it can likely be reported as ordinary income at the time your derivative contract closes.
Submitting your tax report to the ATO
Once you or your accountant has calculated your crypto tax, the easiest way to file your taxes is online using myGov. We will be updating this guide soon with a full detailed explanation of how to submit your taxes.
