For decades, accountants and tax authorities have grappled with how to value, trade and eventually tax intangibles. Over time, we’ve come up with ways to effectively manage intangibles such as brand names, rights, trademarks, systems and even how much a business is valued by an owner, over and above the tangible assets – goodwill.
Cryptocurrencies have create another shift in the world of financial, tradeable and intangible assets. Banks, regulators, market participants are all starting to adapt to the emergence of various cryptocurrencies.
Thankfully, the Australian Taxation Office, never wanting to miss an untaxed profit, has provided some initial guidelines (note that this has not been tested in court, and the final outcome may be different to the ATO’s view).
Here’s a summary of the most common scenarios:
– If you purchase and operate a cryptocurrency business (Am I in business?) then all gains and losses will be taxable under normal income rules. This would be similar to a day trader who has a volume of transactions
– If you pay for goods using Bitcoin, any gain or loss will be disregarded if you total investment is under $10,000.
– If your holdings are over $10,000, then you will need to declare the gain/loss under the Capital Gains Tax regime. If you’ve held the cryptocurrency for over 12 months, you may be entitled to the 50% CGT concession or apply against capital losses.
– In some circumstances, an SMSF may invest in cryptocurrency as a medium/long term asset, but additional regulations apply. The current rule of thumb is that cryptocurrency should not be more than 3-5% of the SMSF’s total investment portfolio – a financial planner will need to be consulted to review and amend your investment strategy.
Each situation must be treated on its own merits and some may require clarification from the ATO:
– does the $10,000 limit count towards a specific currency (Bitcoin, Etherium, etc.) or across the whole portfolio;
– what if I buy lots from Kogan using BTC, do I need to pay tax on the gain?
– what if I purchase a currency in my testamentary trust?
We hope that ATO will continue to work with accountants to answer some of these questions – but it is clear that the ATO will be taxing some of the large 2017/18 profits.
One question is how will the ATO know, if cryptocurrencies are anonymous – remember there is always a paper trail when you convert to AUD via your bank/Austrac for international transfer. The simple answer is, that the ATO can find you – which is especially concerning since the ATO advised 2 weeks ago of a specialist audit team: