Cryptocurrency is quite a new and experimental thing in the world of paying for goods and services. However, even though it is not ‘money’ in the conventional sense, cryptocurrency is still under the watch of the Australian Taxation Office – and paying taxes is something you need to keep track of.
How is Cryptocurrency Classified in Australia?
Australian citizens who buy cryptocurrency are not buying or exchanging money – legally, in the eyes of the ATO, they are buying property. The currency is considered a digital asset, and when a gain or loss is made, the current value in AUD is used to calculate how much it was worth.
If you were to take a sale profit of $500,000 from Cryptocurrency that you bought a year ago for only $100,000, for example, then the $500,000 profit is considered capital gains. This means that it is taxed, although not directly – it has to be added to your other sources of income first.
It is important to remember that investors and traders have different rules here. Investors are the most likely to pay Capital Gains Tax, whereas buying and selling small amounts will not usually cause the same issue.
Capital Gains Tax
CGT applies when you ‘dispose’ of cryptocurrency, not when you gain it. This means that any time you sell or trade away/exchange away a cryptocurrency, tax can apply to the profits you make from it. This can include selling one currency for another, with the value being calculated in AUD.
This also applies when turning cryptocurrency back into fiat currency, buying something with the currency, or giving it to somebody else (either as a gift or a sale).
Note that you can be exempt from this as long as you are using cryptocurrency personally.
Trading in Crypto
If you are trading in cryptocurrency, or have a business that can accept and send it as a payment method, then it is important to assess how you are using it. Using crypto for business purposes is very different from using it casually, and different tax treatments can apply based on how you use it.
Personal Use Assets
On the other hand, if you are not using cryptocurrency for business and it is not part of an investment or attempt to make money, then you can be except. Buying a laptop online would count as personal while selling a laptop to somebody else professionally would be a business use.
Exchanging one cryptocurrency for another or for real money is technically ‘disposing’ of that currency for another. This means that tax applies based on the value of the currency on the day that the transaction happens. Moving currency from one digital wallet to another is tax-free, however.
Is Crypto Treated Like Money?
Cryptocurrency gets a similar treatment to money by the ATO, but with a focus on the property itself and the relative value of the currency in AUD. This can be complicated, but it just takes some time to understand.
If you are worried about tax sneaking up on you, using resources like this website could be exactly what you need to get a proper breakdown of tax amounts and the ways that tax applies differently in certain situations.