Cryptocurrency and your Tax Obligations

What is Cryptocurrency?

Cryptocurrency is a form of digital or virtual currency secured by cryptography. Unlike traditional currencies, it operates on decentralised networks known as blockchains, without any control from central banks or governments.

Popular cryptocurrencies include Bitcoin, Ethereum, and Litecoin. These digital assets can be used to purchase goods and services or traded on cryptocurrency exchanges for fiat currencies like the Australian dollar.

Your Tax Obligations as a Crypto Investor in Australia

Cryptocurrency is treated as an asset, not as money, under Australian tax law. This means your tax responsibilities are similar to those for shares or investment properties.

1. Keep Accurate Records

The ATO requires detailed records for all your crypto transactions. You should document:

• The date of each transaction

• The type and quantity of cryptocurrency

• The value in Australian dollars at the time

• The reason for the transaction (e.g., purchase, trade, staking)

• Wallet and exchange records or screenshots

Good record-keeping is essential in case of an audit.

2. Understand Capital Gains Tax (CGT)

Cryptocurrency is subject to Capital Gains Tax. This applies when you:

• Sell crypto for fiat currency

• Exchange one crypto for another

• Use crypto to purchase goods or services

The gain is calculated as the difference between your cost base (what you paid, including fees) and the capital proceeds (what you received). If you've held the asset for over 12 months, a 50% CGT discount may apply for individuals.

3. Include Income from Staking and Airdrops

If you receive rewards from staking, airdrops, or mining, these are treated as ordinary income and must be declared in your tax return at the market value on the date received.

4. Report Correctly in Your Tax Return

All capital gains, capital losses, and income from crypto must be included in your individual tax return. Losses can offset gains but cannot be deducted from ordinary income.

Ensure you use the correct labels and attach supporting documentation where required.

5. Stay Up-to-Date with ATO Guidance

The ATO continues to issue updated guidance as the cryptocurrency landscape evolves. For example, non-fungible tokens (NFTs), decentralised finance (DeFi) protocols, and staking arrangements are all areas under increased scrutiny.

Final Thoughts

Managing your cryptocurrency tax affairs isn't just about avoiding penalties, it’s about protecting your wealth. With complex rules and rapid changes in regulations, it pays to seek professional advice.

At Dolman Bateman, we help investors, traders, and businesses navigate the complexities of crypto taxation. From record-keeping systems to CGT calculations, we’ve got you covered.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.