Cryptocurrency Tax

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Crypto-what?

Cryptocurrency (crypto-currency or crypto) refers to any form of currency that exists online. It’s a type of digital asset in which encryption techniques are used to regulate the generation of units and transactions on a blockchain. 

Everyday individuals and businesses can use cryptocurrencies (such as Bitcoin or Ethereum) to make purchases online. Cryptocurrency appeals to consumers as it operates independently, which means there’s no control from a central bank or government. 

Bitcoin

Cryptocurrency has taken the world by storm since the first and most successful blockchain cryptocurrency was launched in 2009, Bitcoin.By 2013, one Bitcoin was valued at over $1,250, by 2017 one Bitcoin was valued at $25,000 and in 2021 the price reached $87,000. Bitcoin has become the most renowned cryptocurrency currency in the world.

Crypto tax

If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances. You will need to keep records of your cryptocurrency transactions in its many forms:

  • Sell or gift cryptocurrency 
  • Trade cryptocurrency  
  • Exchange cryptocurrencies 
  • Exchange cryptocurrency into a fiat currency
  • Buy with cryptocurrency

If you have interacted with cryptocurrency in one or more of the above forms in the last financial year (1 July – 30 June), you’ll potentially need to declare your cryptocurrency transactions on your next Tax Return.

Capital Gain Tax (CGT)

Capital gains with cryptocurrency work in the same way with any other asset you own. 

When making a capital gain on the disposal of cryptocurrency, a portion of the gain may be taxed. In some situations, the entire gain may be taxed whereas in other situations, it can be completely disregarded. 

If you’re exchanging or disposing your cryptocurrency for goods, cash or other cryptocurrencies, you will commonly need to include the capital gain or loss in your tax return. To do this, you will need to determine whether you’ve incurred a gain or a loss and also convert to Australian dollars.  Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded.

The difference  between a capital gain or loss is defined by the cost base and the capital proceeds. 

Cost base: the costs incurred from ownership e.g. the cost you pay initially when you buy cryptocurrency and any ongoing costs. 

Capital proceeds: costs received when disposing of cryptocurrency e.g. if you sell, gift, trade, exchange, convert.

If you have experienced loss or theft of cryptocurrency you may be able to claim a capital loss. You will need to provide relevant evidence of the events and proof of ownership. 

Capital gains is a complicated topic, with the CGT depending greatly on your unique tax situation. We recommend reaching out to our tax agents here at Breathe Accounting to make sure you declare your cryptocurrency assets accurately and legally.

Cryptocurrency records

Storing records might sound like a nuisance but trust us, when tax time rolls around you’ll save yourself immense time and stress if you’ve got your cryptocurrency records handy. 

To lodge your cryptocurrency tax return you’ll need to acquire records of all transactions associated with your cryptocurrency including:

  • Receipts from buying cryptocurrency 
  • Any useful documents you might hold that display the cryptocurrency, value, purchase price and important dates and times
  • Records displaying any fees incurred 
  • Receipts from accountants or legal costs 
  • Records of any exchanges 
  • Receipts of all costs incurred from managing your cryptocurrency 
  • Digital wallet records and keys 
  • All records of the sale, transferring and movement of your cryptocurrency 
  • Calculations of capital gain or loss

 

You can download a cryptocurrency tax report, which will greatly help categorise transactions and calculate realised and unrealised trading profit and/or capital gain/losses . These tax reports are accountant friendly, so we encourage you to bring in these tax reports when we work with you on lodging your tax. If this is all too hard here at Breathe we have partnered with Cryptocurrency Tax Calculator, to produce cryptocurrency tax reports you can rely on and make informed decisions with.

Seek professional help

When it comes to lodging your tax, it’s always advised you seek professional help from your accountant. 

If you have any questions to prepare for tax time or, you need expert assistance for lodgement, contact our team at Breathe Accounting today. 

We’re here to help you with any- and everything tax related so you can breathe easy when EOFY hits.

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