Australian Cryptocurrency Taxation for Residents and Non-Residents for Tax Purposes Australia

The rules around Australian Crypto Taxes can be tricky to navigate. Whether your’re an Australian tax resident or non resident, you day trade or are a HODLer, or you leverage and/or stake, the ATO is interested in what you’ve done. If you’ve engaged in any sort of cryptocurrency transaction over the financial year, you’re likely required to report it in your tax return. The process of collecting, organising, and submitting all of your trade, sale, and purchase information, however, can be a headache. That’s why we are here to help.

The ATO’s View

 In its guide to the tax treatment of cryptocurrencies, the ATO shares its view that Bitcoin (and other cryptocurrencies with the same characteristics) are neither money nor Australian or foreign currency.

 Instead, the ATO classes it as property and as a digital asset.

 How will the ATO know? 

 One of the regular queries we see and hear is “how will the ATO know?!”  There are several ways the ATO are privy to your cryptocurrency data:

• Know Your Customer (KYC) data – Through the use of KYC, the ATO are able to data-match the information on the exchanges to the individuals they belong to. From the exchanges, they have received transaction data, including, trading, deposit and withdrawal history as well as identifiable information relating to you such as your name, date of birth, address and contact information.
• AUSTRAC – Under changes to Australia’s anti-money-laundering laws that have come into effect on 3 April 2018, cryptocurrency exchanges are signed up to a new Digital Currency Exchange Register, and transactions exceeding $10,000 will need to be reported to AUSTRAC in line with the existing rules for bank transfers and cash transactions.
• Connecting to other countries – through data-matching programs with other countries, the ATO may have information related to overseas exchanges

 In addition, the ATO has announced that it will be targeting cryptocurrency among other areas this financial year.

 How to avoid tax on cryptocurrency in Australia? 

You cannot just ignore your cryptocurrency tax in Australia, as mentioned above the ATO has many avenues of accessing information. That being said, there are several legal ways of crypto tax minimisation to consider. Whether its accessing Capital Gains Tax concessions like the 12 months discount, transacting as a business for crypto trading or separating a portfolio to solely be a personal use asset. 

Cryptos and Australian Tax Residency

Taxation on Cryptos like other assets depends on your residency status.

As always – if you are considered an Australian resident for tax purposes, you are liable to pay tax on your worldwide income. As a non-resident for tax, you only pay tax on your Australian sourced income.

If you are unsure of your Australian Tax residency status, please complete our Residency Research Tool, Contact us or Book a Consultation.

Crypto Tax in Australia as a non-resident for Tax

Being a non-resident for tax in Australia can have advantages in Crypto Tax. Per the ATO, cryptocurrency does not meet the definition of taxable Australian property and thus, is NOT subject to Australian capital gains tax when purchased and sold by a non-resident taxpayer.

You must be careful to ensure all purchases and sales are done when you are a non-resident for tax in Australia. If cryptos are held while you change from being a resident to a non-resident, there may be a taxable event. If that event does not occur, the cryptos may change their nature to become Taxable Australian Property. This is the same per shares, managed funds, etc. More info on these can be found in our blogs – Becoming a non-resident for Australian Tax: Investments and Capital Gains Tax complexities and Income & Debt complexities.

If you purchase cryptos as a non-resident and then your residency status changes, the market value will be deemed to be the value as at the date of becoming an Australian tax resident.

How are cryptocurrencies taxed in Australia? and how much tax on crypto Australia?

The first step of understanding your cryptocurrency tax obligations is knowing what type of owner of cryptocurrency you are.

There are two main methods:

1. As an investor – meaning capital gains tax (CGT) rules will be applicable
2. As a business – meaning on revenue account

Investment

Investors buy cryptocurrencies intending to hold for the longer term. As an investor, your income derived is treated as capital gains tax in Australia. Please note, any trades between crypto to crypto as well as crypto to fiat currency – are all looked at as capital gain events.

Just like any other investment, you make a taxable capital gain when you sell the cryptocurrency for more than your purchase cost, and you make a capital loss when you sell for less than you originally paid. For capital gains, if you are an Australian resident individual and hold the investment for at least 12 months then you will be able to claim the 50% CGT discount, meaning you only pay tax on half of the actual gain.

For example – Monica buys a parcel of Bitcoin for $10,000 as a long-term investment, and sells the entire parcel for $30,000 two years later. Her gross capital gain is $20,000, which will be reduced to a taxable capital gain of $10,000 by the 50% discount.

As a Business

Several crypto-related activities will generate business income including professional crypto trading and crypto mining. You may run a business through several structures, including as a sole trader, company or trust.

If you hold cryptocurrency for sale or exchange in the ordinary course of your business, the trading stock rules may apply. This means that the proceeds from the sale of cryptocurrency held as trading stock in a business are classed as ordinary income, and the cost of acquiring cryptocurrency held as trading stock can be claimed as a deduction.

However, for the above rules to apply, you’ll need to satisfy the ATO’s requirements for running a business, which includes:

• Operating for commercial reasons and in a commercially viable way
• Acting in a business-like manner, for example preparing a business plan and acquiring capital assets or inventory in line with the business plan
• Preparing accounting records
• Intending to make a profit
• Being able to demonstrate repetition and regularity in your business activities

Strategies and Tips to consider

1. Be sure to confirm your tax residence
   • As noted above, your tax residence has big implications on how you treat your cryptocurrencies in the Australian tax system. If your residency is changing, ensure you are aware of the effects of that.
2. Make your intentions clear
   • Understand your situation and objectives so you can apply the correct tax treatment. You can keep different wallets for different purposes. Be sure to have records of intentions if the ATO comes knocking
3. Purchasing Private Goods and Services may not trigger income tax if under $10k
   • you will not trigger an income tax event if you only use cryptocurrency to pay for personal goods and services and you are not doing business or carrying on an enterprise or otherwise considered to be investing in cryptocurrency with an intention of profit.
4. Keep records including balances as at the end of each financial year
   • Regardless of whether you’re considered an investor or a business, you must keep detailed records of your cryptocurrency transactions. Some major exchanges like Binance only allow you to download statements from a certain restricted period. Therefore, we recommend constantly keep records of your transactions handy. Records should include:
     • The date of each transaction
     • The value of the cryptocurrency in Australian dollars at the time of the transaction (you can get this from a reputable crypto exchange)
     • The purpose of the transaction
     • The details of the other party involved (even if it’s just their crypto wallet address)
   • If you are running a crypto trading business and your coins are considered trading stock, it’s important to keep records of your balances at the end of each financial year
5. Consider deductions or costs associated with your investments
   • Crypto exchanges charge relatively high fees on each transaction. Do not forget to include those fees and any other fees as part of your taxes. If you are running your cryptos as a business these expenses reduce your taxable income. If you are an investor, you can include certain expenses as part of your asset cost base and capital proceeds.
6. Use a crypto tax software to calculate your profits and manage your portfolio. We recommend Crypto Tax Calculator, Koinly or Cryptocate. 
7. Talk to an expert
   • At Worldwide Advisory we have numerous clients who are investors or run businesses with cryptocurrencies. We also invest/trade on a personal level. Therefore, we are well aware of the tax treatment especially when it comes to your tax residency. There are also several specialised Australian cryptocurrency tax firms you can reach out to.

Please contact us or book an appointment to chat further on this.