Has the bitcoin bubble burst? It’s a question many economists and crypto investors ask, and in the absence of a crystal ball, it may be difficult to know the answer.
What is known, however, is the complexity surrounding the taxation of crypto assets. This is in part due to the ever-evolving number of cryptoassets in existence and the different attributes each has, as well as the different types of transactions that can lead to their derivation or disposal.
With this in mind, what are the key facts you should know about crypto asset taxation in Australia?
1. Tax must be paid on profits when disposing of crypto-assets
Profits arising from the disposal of crypto-assets by Australian residents, such as cryptocurrency or non-fungible tokens (NFTs) will be taxable in Australia. A disposal may include a sale, exchange, transfer between exchanges, conversion to fiat currency (eg USD), a gift or exchange for goods or services.
2. Your tax liability will depend on why you bought the asset, how you held it and why you disposed of it
The default position is that crypto assets are capital gains tax (CGT) assets and certain CGT concessions or exemptions may apply to reduce a CGT liability on their disposal. This includes a 50% discount for assets held for longer than 12 months and, in limited cases, a full exemption for assets for personal use. Conversely, if you run a business trading crypto-assets or enter into a profit-making transaction, profits will instead be assessed as income and access to CGT concessions will not be available.
3. Tax can also be paid when you receive crypto assets
The purchase of crypto assets is not a tax point. However, in certain circumstances, the receipt of crypto-assets may be taxable. For example, if you receive payment for services/salary in crypto-assets, if you derive the assets as a result of mining activities or if you receive the assets via an Airdrop.
4. The ATO knows about your crypto transactions!
The ATO has the ability to track crypto transactions and is currently conducting a mass data matching program. Australian exchanges (referred to as designated service providers or DSPs) are required to provide significant data to ASIC and the ATO about their customers. This enables the ATO to identify high-risk taxpayers who may not have disclosed their assessable income or gains.
5. Losses can be offset against gains – if they have been realised
Crypto losses can offset gains and thus lower your potential tax bill. For capital losses, however, they can only be offset against capital gains. Loss of income can be offset against both capital and income gains. But it is important that your losses must be realized. For example, in March 2023 you bought 1 Bitcoin for $63,150. In March 2024, Bitcoin was worth $40,600. Despite a decline in value, you have not realized a loss until the Bitcoin is sold or otherwise disposed of. If sold, the $22,500 loss would be offset against other realized gains or income depending on the nature of the holding and whether it is in a capital or income account.
Ensuring the correct tax position in relation to your crypto transactions is essential to avoid penalties imposed by the Federal Commissioner of Taxation on audit.
