The Australian Tax Office (ATO) has made it clear that income earned from cryptocurrency-related activity (investing, trading, earning) needs to be reported with your taxes. In this guide, we discuss crypto tax fundamentals as well as how you need to be reporting your cryptocurrency capital gains and related income to stay compliant with ATO regulations.
The Australian Tax Office has released official guidance on the tax treatment of cryptocurrencies.
In short, cryptocurrencies are subject to capital gains tax treatment as well as ordinary income, depending on the circumstances of your crypto transactions.
Capital gains tax (CGT) - applies to a cryptocurrency at the time it is disposed of. You dispose of cryptocurrency when you sell it, trade it for another cryptocurrency, or use it for a purchase etc.
This capital gain is simply the difference between the AUD value of the cryptocurrency at the time you disposed of it minus the AUD value of the cryptocurrency at the time it was acquired. You are required to keep records of every capital gain event for five years after the event occurs.
Income taxes - apply for cryptocurrencies that you have earned — whether that is through a job, mining, staking, or other means. Income tax is charged on the fair market value of the coins you earned at the time you earned them.
John purchases Bitcoin on Binance. He pays AU$1200 for 0.1 BTC. Three months later his Bitcoin has increased in value to AU$1500, so John trades it for another cryptocurrency, ETH.
In this case, John has disposed of his Bitcoin (by trading it for ETH) and has triggered a capital gains tax. He will owe a percentage tax on his AU$300 gain.
Note: if you are a professional trader, then trading stock tax treatment may apply instead of capital gains tax treatment.
Louis works as a developer in Sydney and is compensated in bitcoin. On July 14, Louis was paid 0.25 BTC for services rendered.
In this example, Louis recognizes income for the AUD fair market value of 0.25 BTC on July 14th. In this example, let’s say 0.25 BTC was worth AU$4,000. Louis would recognize AU$4,000 of income and report this on his taxes.
Generally speaking, whenever you “dispose” of a cryptocurrency (get rid of it), you incur a capital gain or a capital loss from the transaction. This gain or loss needs to be included with your taxes.
According to the ATO, common disposals of cryptocurrency would include anytime you:
Anytime one of these disposals occurs, you incur a capital gain or loss that needs to be included with your taxes.
If you have held your cryptocurrency for more than 12 months before the relevant CGT event (disposal) occurs, then you may apply the Capital Gain Tax Discount Method. This discount can provide a significant tax savings opportunity for investors.
To apply the capital gain discount, first calculate the capital gain, subtract the cost basis (including fees) from the capital proceeds, deduct any capital losses, and then reduce the capital gain by the relevant discount percentage. Keep in mind that you subtract capital losses from total capital gains before applying any discount.
The discount percentage is 50% for individuals and trusts, and 33.33% for complying super funds and eligible life insurance companies.
Of course, if you have not held your cryptocurrencies for more than 12 months, these discounts do not apply. If you’re not sure if your cryptocurrency sales apply for CGT discount, you can import your transaction history into CryptoTrader.Tax to automatically sort out which assets were held for longer than 12 months prior to being sold.
The reporting process for your crypto capital gains is fairly straightforward. For each cryptocurrency “disposal” event, you need to calculate your associated gain or loss from the transaction in AUD terms.
Once you have calculated your gain/loss from each transaction, add up all of your gains and losses to arrive at your net capital gain or loss for the full tax year. Report this net capital gain under section 18 of the Australian tax forms.
You can use cryptocurrency tax software like CryptoTrader.Tax to calculate all of your gains and losses across all of your trades without requiring any manual work. Simply import your transactions from your cryptocurrency exchanges into your account and generate the associated capital gains reports with the click of a button.
Keep in mind that in Australia you are only allowed to take losses against future capital gains. This means if you have a net capital loss from your crypto investing activity this tax year, you cannot use it to reduce your income tax in the current tax year.
However, you can use that loss to offset your capital gains in future tax years.
Income earned in cryptocurrency should be reported on Question 2 of the Australian tax forms. It’s on this form that you report earnings that were not salary or wages subject to standard withholdings, such as tips and other income.
Calculating cryptocurrency-related capital gains and losses for every single executed trade presents various challenges for crypto traders.
Some traders have been trading cryptocurrencies for months, possibly years, and haven’t been keeping track of their cost basis or of the Fair Market Value of their crypto in AUD terms at the time they traded it.
It's also not easy to keep track of AUD values for most trades as they are typically quoted in other cryptocurrency values, not in fiat currencies like AUD.
Both cost basis and Fair Market Value information are needed for traders to accurately file their taxes and avoid problems with the ATO. This means that traders need to lookup the historical values for every single trade they made in AUD terms to properly calculate gains and losses.
As you can tell, depending on the volume of trades you have carried out, these calculations can become extremely tedious and potentially impossible to do by hand if you haven’t been keeping perfect records—especially if you have to do this calculation for hundreds or even thousands of trades.
As a result of this challenge, a lot of Australian cryptocurrency investors are turning to cryptocurrency tax software to automate the entire tax reporting process.
Cryptocurrencies received from mining activity are subject to taxes.
Depending on whether you are mining as a hobbyist or as a business, your cryptocurrency mining rewards will be taxed slightly differently. So the first step is to determine whether or not you are operating as a business. The ATO has released guidance on this distinction.
If you are mining cryptocurrencies as a business, you recognize income equal to the fair market value in AUD of the cryptocurrencies at the time you receive them. Your cost basis becomes the amount of income you recognized. You realize capital gains or losses when you dispose of the crypto.
If you are using CryptoTrader.Tax to calculate your cryptocurrency taxes, the AUD value of all of your business mining rewards will be reported within your income report.
Lucas runs a cryptocurrency mine as a business. On June 1, his mine earns 1 bitcoin. At the time of receipt, 1 bitcoin is worth $12,000. Three months later, Lucas sells this 1 bitcoin that he mined for $13,000.
In this example, Lucas recognizes $12,000 of income on June 1. He then incurs a $1,000 capital gain three months later when he sells (disposes) of his bitcoin for $13,000.
If you are mining as a hobby, you do not recognize income on the day you received a mining reward. Rather, your cost basis in the mined crypto is $0, and when you dispose of it, you incur a capital gains tax event.
Mitchell mines cryptocurrency as a hobby. On July 1, he receives 20 XYZ coin as a mining reward. On August 1, he sells 20 XYZ coin for $500.
In this example, Mitchell does not recognize any income on July 1. Mitchell realizes a $500 capital gain on August 1 when he sells his XYZ coin.
The ATO has clarified that cryptocurrency earned from lending, staking, or other forms of earned interest on your cryptocurrency is subject to income tax.
Simply put, the interest or staking rewards you receive are a form of ordinary income equal to the fair market value of the tokens in AUD terms at the time you receive them.
Lacy holds 50,000 NULS tokens, which she stakes to a NULS pool as a premium staker. Lacy receives additional NULS tokens when her pool participates in consensus, including a small payment of tokens from the node leader for supporting their node.
On December 12, Lacy received 1,000 NULS tokens which at the time were worth $100. In this example, Lacy would recognize $100 of ordinary income.
Similar to interest, Airdrops also trigger ordinary income equal to the fair market value of the tokens in AUD terms.
It’s not a secret that the Australian government has started to aggressively crack down on cryptocurrency tax reporting.
Recently the ATO sent out more than 350,000 warning notices to suspected cryptocurrency investors and traders to alert them of their tax reporting obligations (pictured below).
Additionally, the ATO launched a Data Matching Protocol For Cryptocurrency to help them validate who is and who is not properly reporting their cryptocurrency gains, losses, and income on their taxes. If you have used any exchanges to buy, sell, or trade cryptocurrency, the ATO is aware of your trading history, and it is important to report these transactions accordingly.
Cryptocurrency tax software like CryptoTrader.Tax is built to automate the entire crypto tax reporting process. Investors and traders from all over the world use the platform to create their necessary capital gains and losses tax reports for their home country.
Simply connect your cryptocurrency exchanges and import your historical trades directly into your account with the click of a button. CryptoTrader.Tax will handle all of the number crunching in the background and export your capital gains, losses, and income reports based on your imported data.
You can give these tax reports to your accountant or tax professional or simply use them to lodge your tax return yourself.
You can import all of your historical transactions and get a preview of your capital gain and losses from the year completely for free. Only pay when you want to download your tax reports. You can learn more about how CryptoTrader.Tax works right here, or watch the explainer video below.
Have any other crypto tax questions? Simply chat in to our live chat support team. We'd be happy to help!
This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.