Crypto in 60 seconds
Crypto currencies (e.g. BitCoin, Etherium, etc.) can be treated in 2 ways:
– Capital Assets (CGT rules apply)
– Revenue Assets (Trading stock rules apply)
This brief guide focuses on what things taxpayers need to consider regarding Crypto CGT assets, and does not delve in high Crypto volume trading and profit making schemes, or Crypto being used in a business (e.g. accept payments).
Below, we’ve summarised a few of the common situations:
$ > Crypto
If you’ve recently converted fiat currency (e.g. Australian or US dollars) to a crypto currency (e.g. BTC), and are holding crypto as an investment, no taxing point has occurred. You have simply acquired a CGT asset, just like a share or a property. At this point, you cannot claim anything spent to acquire that asset, but it may reduce a future capital gain
$ > Crypto > $
If you’ve previously purchased a parcel of crypto currency and have sold it during the financial year – you have triggered a CGT Event A1 and will need to calculate your gain or loss on that parcel. The 50% CGT discount may apply if you’ve held the parcel for over 12 months and you’ll also be able to include some costs (e.g. brokerage). If you don’t sell all of your crypto, you’ll need to calculate the cost base for the portion that was sold, and the remaining amount will be counted against the crypto still held.
$ > Crypto > Crypto > Crypto or $
If you’ve purchased a common crypto currency (e.g. BTC), then purchased another currency (e.g. DOGE), then returned back to BTC or converted to $ you will have triggered 2 x CGT Event A1. The ATO regards each transaction of crypto as a disposal/acquisition (not when converting to fiat currency like AUD), which need to be individually calculated:
1) Profit/loss on BTC when transferring to DOGE
2) Profit/loss on DOGE when transferring back to BTC or $
We recommend using specialist software (e.g. Koinly), and importing all your wallets to match transactions and determine a spot value for the individual transfers.
Some of the issues we’ve recently seen:
1) Large gain in an ALT coin converted to BTC (e.g. $1m profit). ATO is taxing the large gain, but client doesn’t have cash. Recent drop in BTC may cause cashflow issues: BTC now valued at AUD$700,000 but client has a tax bill of close to $450,000. Capital losses need to be carefully managed coming up to 30 June 2021. Be aware of ATO’s Part IVA anti-avoidance wash rules.
2) Lots of trades between crypto currencies. Clients will need specialist software to calculate the profit/loss on each transfer, as no single trading platform available (e.g. CommSec for shares)
3) Individuals may be treated as a business due to high volume of trade. Adverse tax consequences regarding trading stock rules at 30 June 2021.
4) Superannuation funds investing in crypto. We see a few issues here: too much invested (fail sole purpose test), wallets not correctly set up (e.g. not in the legal name of the SMSF), wallets not segregated from personal funds, SMSFs mining crypto, deed does not allow investing in Crypto, investment strategy needs to be updated. Note most financial planners and accountants will not give advice on the suitability and application of crypto investments in an SMSF. Tread carefully in this space as breaches will need to be reported by the auditor to the ATO.
The advice is general in nature and no warranty is provided by Jigsaw Tax and Advisory. If this applies to your situation, please seek professional advice from a qualified person.