With Bitcoin regularly reaching highs of over $80,000, cryptocurrencies are rapidly rising in popularity to not just investors but newcomers want to travel to moon. Well this article is here to help you understand cryptocurrency taxes you may need to pay in Australia.
As a newcomer, with an abundance of questions and confusion, come tax time, the Australian Tax Office (ATO) will always ensure they receive all tax owing to them. They know when you transfer your Bitcoin to Ethereum and require their cut.
Bitcoin, Ethereum, Ripple, Cardano, and Litecoin prices are rising higher and higher and you might think investing in a digital currency might keep you safe from the ATO. But contrary to popular belief, yes you do have to pay taxes on your cryptocurrency.
So what is cryptocurrency?
It is a decentralized digital currency that is transacted on a blockchain, using the hashing power of computers to check and verify transactions on a public ledger. Some commonly known cryptocurrencies include Bitcoin, Ethereum, Ripple, Cardano, and Litecoin.
How do I acquire Cryptocurrency?
Cryptocurrency can be acquired in a number of ways. Including (but not limited to) purchasing, mining, airdrops, trading, forks, and staking of cryptocurrency. Each of these events or activities can result in a capital gain (or in some cases assessable income). Then the ATO wants to know about it.
So when you do need to pay cryptocurrency taxes?
Despite the blockchain being decentralized and free from government interference. The Australian Tax Office (ATO) will chase you up if a capital gain (income) has been produced. An example of this can occur when you use your Bitcoin (that rose in price since you bought it) to then buy Ethereum.
Several events can trigger a capital gain. These include selling, gifting, or like the example above converting your crypto for fiat or another form of cryptocurrency. A capital gain can also occur when you purchase goods and services paid for with cryptocurrency.
At the beginning of 2020 the ATO announced that they are watching cryptocurrency activities and require you to report it at tax time. In the financial year of when a capital gain (event) may have occurred, you will need to lodge a tax return disclosing the gain in the next financial year before the 31st of October (or the 15th of May if you use a tax agent).
As a majority of investors trade their coins using an Online Exchange Platform (Exchange) that logs their details and transactions. They can then provide this information to the ATO using data-matching. However, sometimes this can be difficult to set up, something a crypto tax specialist can help with.
So how can I prepare crypto for tax time?
Firstly, it is important that you have an in-depth understanding of how crypto taxes work in Australia. Or use a crypto tax specialist accountant that understands the ins and outs of cryptocurrency like Jahn Group.
To prepare crypto for your tax return;
- You need to keep detailed records of your cryptocurrency transactions; including the amount purchased, the price you paid, the currency purchased in, as well as the date of the transaction.
- Some Exchanges allow you to download a document for tax purposes. They detail your transactions, and maybe include a tax estimate, however, these records are not always reliable.
- Any records produced need to be kept for five years. As required by the ATO.
Cryptocurrency tax strategies
There are many strategies and complexities when planning for tax time. Potential strategies might include selling long-term held crypto for a discount on your capital gains. Maximizing eligible deductions, planning ahead and utilizing capital losses.
Other strategies may include superannuation, financial planning, trust funds and more to reduce tax owing on your capital gain. Contact Jahn Group for more information.
So where to from here?
Every person, business, entity, and situation is different. So in most cases, the best course of action would be to get a crypto tax professional for the best possible result. Jahn Group can tailor cryptocurrency tax advice and planning to your situation to save you money and time.