Since the inception of Bitcoin, the first cryptocurrency, in 2008 by the so-called and still ambiguous Satoshi Nakamoto the currency has increased in popularity immensely with more than 4,000 cryptocurrencies in circulation. Yet, the tax treatment of crypto currency is still as unclear as the identity of Satoshi. In this article, we will break down the simple tax treatments, how to keep clear and concise records and what to report to the ATO.

The first step you need to consider is whether you are an investor, trader or personal use as this will determine the subsequent tax and reporting treatments for each. In simple terms;

• Investor - a person who holds shares for the purpose of earning income from dividends and similar receipts.
• Trader - a personal who carried out business activities for the purpose of earning from buying and selling shares.
• Personal - if your cryptocurrency is used to buy groceries or fill up your fuel (personal daily life expenses) and you are not investing for a long-term financial benefit*

* Each situation is different and numerous questions will need to be asked to attain a correct answer

The ATO provide some additional points when answering the above question including:

1. the nature of the activities
2. the repetition, volume and regularity
3. is it organised in a business-like way
4. the amount of capital invested.

Once you have defined what sort of trader you are the tax treatments differ per below:

Investor

1. sales will be subject to capital gains tax treatments
2. access to the 50% discount if you hold the share for more than 12 months
3. net gain will be taxed at your marginal rate and losses will be carried forward

Trader

1. Cost to buy a share is a deduction which will then be considered trading stock
2. Sale amount constitutes assessable income
3. All trades are reported in the business schedule to calculate your net business income or loss and added or subtracted to your taxable income (depending on some other business loss rules)

Personal

The trades will not need to be reported as the money has been used for personal use – again, consult your tax professional to ensure you have reported this correctly

Above are treatments for the normal trading of shares (similar to ASX listed stocks) however there are some other Crypto investments that are a little different. One transaction that catch a lot of people out is when you transfer your crypto’s from one exchange to another (ie. Coinspot to Coingecko) as this will be considered a sale as a fee will be charged. A relatively new investment of crypto’s that has come out is decentralized finance where you can earn a yield (interest) on your crypto. An example is you loan 100 bitcoin and you get 500 bitcoin back. The yield you have earned on this investment will be assessable.

For either definition or investment type all transactions will need to be recorded making it very important that your reporting is accurate and timely.

The simplicity of record keeping will be dependent on what program you are using. For example, the US programs CoinGecko and CoinMarketCap reports are very accurate and easy to read whereas some other programs actually delete your trading history after a month. Whether you are using CoinGecko or a program that deletes your history you will need to download a csv file each year (or month) to show the transactions for that period of time. From there you can start to track and calculate the gain or loss on each transaction and know what figures to report to the ATO.

We have covered a lot in this article, it is not a simple area of tax and many struggle with the rules and evolving areas of this new technology. The ATO’s data matching is becoming more sophisticated each year, so care must be taken to ensure you don’t fall foul of these complex rules. If you ever have any questions or need assistance with cryptocurrency reach out to your tax professional and we can start to guide you in the right direction. The next article we will cover off on different entities you can trade in and the rules surrounding those.