Cryptocurrency is fast emerging as a popular investment in many of our client’s portfolios. The proliferation in digital currencies gives rise to more questions around the unavoidable taxation implications
Whether you’re new to Crypto or a seasoned dealer, we’ve decoded the ATO’s updates and outlined the three key rules every Australian should remember.
Rule 1: Yes, there are Capital Gains Tax (CGT) consequences to disposing of cryptocurrency.
Here is a succinct reference list to help you determine if a CGT event has occurred.
- You have sold or gifted cryptocurrency.
- You traded or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency).
- You converted cryptocurrency to fiat currency (a currency established by government regulation or law), such as Australian dollars.
- You used cryptocurrency to obtain goods or services (Kings of Leon anyone?)
Rule 2: Record and repeat, regardless of your reason.
The ATO has stressed the importance of keeping detailed records of all your transactions with cryptocurrency regardless of your reason for dealing in the asset. Recording now will reduce your compliance burden at tax-time. Suggested records include:
- The date of the transactions.
- The value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange).
- What the transaction was for and who the other party was.
- Receipts of purchase or transfer of cryptocurrency.
- Exchange records.
- Records of agent, accountant, and legal costs.
- Digital wallet records and keys.
- Software costs related to managing your tax affairs.
Rule 3: Taxation rules are different for business and individuals.
It is the ATO’s view that if you hold cryptocurrency for sale or exchange in the ordinary course of your business the trading stock rules apply, and not the CGT rules.
Not all people acquiring and disposing of cryptocurrency will be carrying on a business, so it is important to seek professional guidance if you are wanting to make this determination.
We’ll stay across the changes you need to know.
At A&A, we are anticipating the inevitability of cryptocurrency cementing itself as commonality in society.
Whilst the initial hype seems centred around market leader Bitcoin, the World Economic Forum (WEF) has recently referred to XRP coin (Ripple) as a relevant currency in the Central Bank Digital Currency (CBCD) space for instantaneous and secure intra or inter-bank payments and settlements. Ripple also continues to partner with large financial institutions worldwide such as American Express, MoneyGram, LuLu Exchange and Santander.
We see our role as providing relevant updates to our clients so there are no surprises.
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