Key takeaways
- Crypto traders in Australia are subject to business tax rules, while investors may benefit from a 50% capital gains tax discount if they hold assets for over 12 months.
- Capital gains tax (CGT) applies when you sell or trade crypto, and losses can offset future gains but cannot be deducted from other income.
- Detailed records of all crypto transactions, including purchases, sales and fees, are essential for calculating capital gains or losses and must be kept for five years.
- DeFi transactions, NFTs and wrapped tokens are subject to CGT, and the Australian Taxation Office (ATO) closely monitors crypto activities through exchange data sharing.
Filing cryptocurrency taxes in Australia might seem a bit tricky, but it’s an important step if you’re into crypto trading or investing. Australia has its own tax system for cryptocurrencies, and following these rules is key to avoiding penalties and staying compliant. The Australian Taxation Office (ATO) oversees everything.
This article covers the differences between crypto traders and investors, how capital gains tax (CGT) applies to them, crypto asset records you need to keep, the CGT rate, how to calculate your capital gains tax in Australia, and crypto taxation in decentralized finance (DeFi).
It also covers insights on when and how to file crypto taxes in Australia, the tax implications of non-fungible tokens (NFTs) and how the ATO tracks your crypto.
Difference between crypto traders and investors
Australian law considers you a crypto investor if you:
- Trade occasionally and manage your own portfolio
- Engage in crypto mining as a hobby
- Aim for long-term returns.
On the other hand, you’re classified as a crypto trader if you:
- Mine or trade as a business
- Frequently buy or sell crypto
- Strategically engage in trading activities.
Simply put, if you focus on short-term gains or run a crypto exchange, you’re seen as a trader. Traders need to have business plans, keep detailed records, and handle a high volume of trades. Investors, meanwhile, tend to be more casual, looking for long-term growth.
Investors can benefit from the 50% capital gains tax discount if they hold their cryptocurrency for over 12 months, but traders don’t get this perk. However, traders may qualify for a business income tax offset of up to $1,000 annually.
If you are an investor and incur a capital loss, it can only offset capital gains, but you can carry the loss forward for future gains. For transaction costs and fees, it’s different, too: Investors recognize these costs when the crypto is sold, while traders can deduct them in the year they happen, even if the crypto hasn’t been sold yet.
You can also switch between being an investor and a trader. If you want to change your classification, you’ll need to show evidence that your activities have shifted. Moving from investor to trader? You’ll need to reclassify your capital gains tax (CGT) assets as trading stock in your records.
If you’ve switched between being an investor and a trader, you must notify the ATO to avoid penalties.
Did you know? The global cryptocurrency market has reached a value of over $2.5 trillion, with Bitcoin hitting a record high of $73,750 and a market capitalization of $1.44 trillion on March 14, 2024.
When capital gains tax applies to crypto in Australia
If your goal behind buying cryptocurrency is an investment, the law treats it as a CGT asset. Activities like selling, exchanging or swapping trigger a CGT event, which can lead to a capital gain or loss.
If you incur a capital loss, you can offset it against future capital gains, but you can’t deduct a net capital loss from other types of income. If you hold your crypto for at least 12 months, you may be eligible for the CGT discount, lowering the taxable portion of your gains. Cryptocurrency held as an investment doesn’t qualify for the personal use asset exemption from CGT.
When a CGT event happens
A CGT event happens when you dispose of a CGT asset. These events may include the following, and more:
- Selling a crypto asset
- Trading a crypto asset
- Swapping a crypto asset for another
- Converting a crypto asset to Australian or foreign currency
- Buying goods or services with a crypto asset
- Destruction of a crypto asset.
Crypto asset records you need to keep in Australia
To figure out if you’ve made a capital gain or loss from a CGT event, you need to track all your crypto assets and transactions. Each crypto asset is considered a separate CGT asset, and the law requires you to keep the following records:
- Purchases, transfers and sales
- Transaction dates
- Counterparty info (crypto asset address)
- Exchange records
- Australian dollar value at the time of each transaction
- Agent, accountant and legal fees
- Digital wallet records and keys
- Software costs related to tax management.
You need to keep these records for five years from the year the CGT event happens. Make sure they cover the amendment period (the time limit on tax return changes). Your records need to be in English or translatable to English and can be electronic or on paper.
Did you know? The cryptocurrency exchange market is projected to grow rapidly, with a compound annual growth rate (CAGR) of 27.8% from 2022 to 2030. The market size was valued at $37.07 billion in 2022 and is expected to reach $264.32 billion by 2030.
Capital gains tax rate in Australia
In Australia, when you sell, trade, or spend cryptocurrency as an individual investor, any net capital gain you make is taxed at your applicable income tax rate. This rate is determined by your total income for the tax year.
These rates do not include the Medicare levy of 2%. The Medicare levy is a tax in Australia that helps fund the country’s public healthcare system, Medicare. The levy ensures that citizens and residents have access to healthcare services, though individuals with lower incomes or specific exemptions may pay a reduced rate or no levy at all.
How to calculate your capital gains tax in Australia
If the amount you receive from selling a crypto asset is more than what it cost you, that’s a capital gain. If it’s less, then it’s a capital loss.
To calculate your gains or losses, add up all your capital gains from a crypto asset, then subtract any capital losses along with your entitlement to any CGT discount. You need to make all calculations in Australian dollars.
Crypto taxation on DeFi in Australia
DeFi transactions such as lending, borrowing or contributing to liquidity pools are subject to capital gains tax. Your gain or loss is calculated based on the value at the time of the CGT event.
For wrapped tokens, the tax depends on the token’s market value. DeFi rewards are taxed based on their market value when you receive them. Since DeFi projects don’t have a central decision-maker, it’s crucial to keep detailed records of all transactions and their corresponding values in Australian dollars.
Tax implications of NFTs in Australia
The tax implications for NFTs depend on how you use them and your objective behind holding or transacting them. If you create an NFT to sell it for a profit, the ATO might treat it as income, either as part of a profit-making scheme or a business.
But if you’ve purchased NFTs as an investment and you hold them for a while, the ATO will classify them as CGT assets and tax them under capital gains tax rules.
How does the ATO track your crypto?
To track crypto transactions, the ATO uses databases containing crypto transaction information going back to 2014. If you have an account with an Australian exchange or you use an Australian wallet to keep your crypto, the ATO is likely to be aware of it all.
The ATO also operates a data-matching program in collaboration with Australian exchanges. Exchanges based in Australia are legally required to share data with the ATO regarding your purchases.
Did you know? According to Scamwatch data, scammers targeted Australians with investment scams, resulting in losses of $158 million between January and May 2024. The majority of these scams involved cryptocurrency investments.
When and how to file your crypto taxes in Australia
If you’re filing your own tax return for the previous financial year, the deadline is Oct. 31. But if you use an accountant, you may get an extension.
You can file your tax return using the ATO’s “MyTax” system through your MyGov account by selecting the option for “Capital gains or losses that are not from a managed fund.”
If you’re a crypto investor, your net capital gains are taxed at your individual income tax rate. If your income was below the $18,200 threshold in the last financial year, you won’t need to pay any tax.
Frequent traders or those with transactions across multiple wallets and exchanges may find it helpful to use crypto tax software that follows ATO guidelines.
Crypto tax breaks in Australia
Several crypto tax breaks are available when filing returns in Australia. For instance, if your income as an individual is below the tax-free threshold, you will be fully exempt from paying tax.
As an investor, if you hold your crypto asset for over 12 months before selling or trading it, you may be eligible for a 50% discount on CGT. If an asset is classified as a “personal use asset” for CGT purposes, it could be exempt from CGT if the asset is worth less than $10,000. But the ATO generally treats cryptocurrency as a non-personal asset.
Nonetheless, if you buy crypto and immediately sell it to purchase a personal item, it might be considered a personal asset.
Here are some ways to help reduce your tax obligations:
- Receiving cryptocurrency as a gift
- Offsetting capital gains with capital losses
- Claiming business tax deductions as a crypto trader
- Purchasing Bitcoin exchange-traded funds (ETFs)
- Deducting crypto mining expenses
- Donating cryptocurrency to ATO-registered charities.
Did you know? If you receive cryptocurrency as a gift in Australia, you may still be liable for capital gains tax when you eventually sell it. Under Australian tax law, the cost base (the value for tax purposes) of the crypto is usually carried over from the person who gifted it to you. So, if the value of the crypto has appreciated since you received it, you may owe taxes on the gain when you sell. It’s essential to keep accurate records to ensure you calculate the correct tax obligations at the time of sale.
Keeping your receipts regarding any expenses related to your crypto investments always helps. Interest on loans used to purchase crypto, management fees and other expenses related to buying, selling or holding cryptocurrency might get you more deductions.
Whenever feasible, hold crypto for at least 12 months. If an asset has appreciated in value and you hold it for 12 months before selling, only half of the capital gain is taxable.
The timing of your crypto sale can impact your tax liability. For example, if you’re facing a loss, selling now could help offset capital gains. However, if you expect a profit, selling after July 1 allows you to defer the capital gain into the next financial year.