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  • Cryptocurrency and tax

    Cryptocurrencies are also known as virtual currencies or digital currencies. They are a form of digital token.

    There are many different types of cryptocurrency – Bitcoin, Tether, Ether and many others. They are created from code using an encrypted string of data blocks, known as a blockchain.

    On this page

    Tax responsibilities

    If you buy, sell or invest in cryptocurrency, you need to be aware of your tax responsibilities.

    Your tax responsibilities vary depending on your circumstances, but you need to keep records for all cryptocurrency transactions.

    If you have transacted with a foreign cryptocurrency exchange you may have tax responsibilities in another country.

    If you need help understanding how this information applies to you, contact us or talk to a registered tax agent.

    You can also read about the Tax treatment of cryptocurrencies in Australia.

    Follow these 3 steps to help you manage your tax responsibilities with cryptocurrency.

    1. Report disposal of cryptocurrency

    You must report a disposal of cryptocurrency for capital gains tax purposes. Disposing occurs when you either:

    • exchange one cryptocurrency for another cryptocurrency
    • trade, sell or gift cryptocurrency
    • convert cryptocurrency to a fiat currency (a currency established by government regulation or law), for example to Australian dollars (A$).

    Transferring cryptocurrency from one digital wallet to another digital wallet is not considered as a disposal as long as you maintain ownership of it.

    If your cryptocurrency holding reduces during this transfer to cover the network fee, the transaction fee is a disposal and has capital gain consequences.

    2. Work out any CGT

    If you exchange cryptocurrency for goods, cash or other cryptocurrencies, it is normally considered a disposal for the purposes of capital gains tax (CGT) and you may need to include a capital gain or loss in your tax return.

    To work out your capital gain or loss, you need to determine the value of your cryptocurrency purchases and sales in Australian dollars. A capital gain or loss is the difference between the:

    • cost base (cost of ownership, including the purchase price plus certain other costs associated with acquiring, holding and disposing of it)
    • capital proceeds (what you receive or the market value of what you receive) when you dispose of your cryptocurrency.

    If you:

    • buy cryptocurrency using Australian dollars, the amount you paid is included in your cost base (see example 1)
    • exchange one cryptocurrency into another cryptocurrency, your cost base is the market value in Australian dollars of the cryptocurrency at the time of the transaction (see example 2).

    If you have a net capital loss, you can use it to reduce a capital gain you make in a later year. You can't deduct a net capital loss from your other income.

    3. Keep records

    You need to keep records of all transactions associated with acquiring, holding and disposing of cryptocurrency. You need to keep records for five years after you dispose of the cryptocurrency.

    In this section

    Buying (acquiring)

    You need to keep either:

    • records of receipts of transactions
    • documents that display
      • the cryptocurrency
      • the purchase price in Australian dollars
      • the date and time of the transaction
      • what the transaction was for.
       

    You also need records showing:

    • commission or brokerage fees on the purchase
    • agent, accountant and legal costs
    • exchange records.

    Owning (holding)

    You need to keep records of:

    • software costs related to managing your tax affairs
    • digital wallet records and keys
    • documents showing the date and quantity of cryptocurrency received via staking or airdrop.

    Disposing

    You need to keep either:

    • records of receipts of sale or transfer
    • documents that display
      • the cryptocurrency
      • the sale or transfer price in Australian dollars
      • the date and time of the transaction
      • what the transaction was for.
       

    You also need records showing:

    • commission or brokerage fees on the sale or transfer
    • exchange records
    • calculation of capital gain or loss.

    How to keep records

    To help keep accurate records:

    • set up a record keeping system, which can be as a simple as a spreadsheet or you can use professional software
    • scan digital copies of your records to make it easier to store and access them.

    Personal use assets and cryptocurrency

    Some capital gains or losses that arise from the disposal of a cryptocurrency that is a personal use asset may be disregarded.

    Cryptocurrency is a personal use asset if it is kept or used mainly to purchase items for personal use or consumption (see example 3).

    Cryptocurrency is not a personal use asset if it is kept or used mainly as any of the following:

    • an investment
    • part of a profit-making scheme
    • in the course of carrying on a business.

    Where cryptocurrency is acquired and used within a short period of time to acquire items for personal use or consumption, the cryptocurrency is more likely to be a personal use asset.

    However, where the cryptocurrency is acquired and held for some time before any such transactions are made, or only a small proportion of the cryptocurrency acquired is used to make such transactions, it is less likely that the cryptocurrency is a personal use asset. In those situations, the cryptocurrency is more likely to be held for some other purpose.

    In most situations, cryptocurrency is not a personal use asset and is subject to capital gains. However, some exceptions apply.

    Only capital gains you make from disposing of personal use assets acquired for less than $10,000 are disregarded for capital gains tax purposes.

    Example 1: disposing of cryptocurrency purchased with fiat currency (a currency established by a country's government regulation or law)

    Tim purchased 400 USD Tether (USDT) for A$800. A few days later Tim exchanged his 400 USDT for 2 Ether (ETH). Tim needs to report his capital gain or loss from the disposal of cryptocurrency (USDT) in his tax return.

    Tim's receipt shows he:

    • used A$800 to purchase 400 USDT
    • was charged A$5 for brokerage.

    Tim's cost base is $800 + $5, which totals $805.

    Tim's exchange provides a receipt for the purchase of 2 ETH but it does not include prices in Australian dollars. According to his exchange records, Tim exchanged 400 USDT for 2 ETH on 25 June 2019 at 1:30pm.

    At the time of this transaction, the market value of 2 ETH was A$900. Tim's capital proceeds is A$900.

    Tim subtracts his cost base (A$805) from his capital proceeds (A$900), which results in a capital gain of A$95.

    Tim reports a capital gain of $95 in his 2019 tax return.

    End of example

     

    Example 2: exchanging a cryptocurrency for another cryptocurrency

    Following on from Example 1, a few months later Tim exchanged his 2 Ether (ETH) for 0.08 Bitcoin (BTC).

    Tim's exchange records show he acquired 2 ETH on 25 June 2019 at 1:30pm for 400 USD Tether (USDT). At the time of the transaction, the USDT had a market value of A$900.

    Tim's exchange charges him an A$10 brokerage fee to trade 2 ETH for 0.08 BTC.

    Tim's cost base is $900 + $10, which totals $910.

    Tim's exchange provides a receipt for the acquisition 0.08 BTC, but it does not include prices in Australian dollars. Tim's receipt shows he disposed of his 2 ETH for 0.08 BTC on 13 July 2019 at 2:00pm.

    At the time of this transaction, the market value of 0.08 BTC was A$1,055. Tim's capital proceeds from the exchange of 2 ETH for 0.08 BTC is A$1,055.

    Tim subtracts his cost base (A$910) from his capital proceeds (A$1,055), which results in a capital gain of A$145.

    Tim reports a capital gain of $145 in his 2020 tax return.

    End of example

     

    Example 3: personal use asset

    Josh pays $50 to acquire cryptocurrency each fortnight. During each of the same fortnights, he uses the cryptocurrency to directly transact and acquire computer games. Josh does not hold any other cryptocurrency.

    In one fortnight, Josh sees a computer game he wants to buy from an online retailer that doesn't accept cryptocurrency. Josh uses an online payment gateway to buy the game. In these circumstances, in which Josh acquired and used the cryptocurrency, the cryptocurrency (including the amount used through the online payment gateway) is a personal use asset.

    End of example

     

    Example 4: investment in cryptocurrency

    Rose purchased cryptocurrency with the intention of selling at a favourable exchange rate. She decides to buy some goods and services directly with some of her cryptocurrency. Because Rose uses the cryptocurrency as an investment, the cryptocurrency is not a personal use asset.

    End of example
      Last modified: 08 Dec 2021QC 67444