Wondering How to Navigate Crypto Taxes in South Africa? Read our detailed guide on South African Crypto Taxes!
Wondering How to Navigate Crypto Taxes in South Africa? Read our detailed guide on South African Crypto Taxes!
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Curious about the future of crypto taxation in Malaysia? Explore our 2023 Crypto Tax Guide for expert insights on crypto taxation in the region!
Are you still trying to figure out whether crypto is legal in Australia? Or How crypto transactions are taxed by the ATO?
If you answered any one of these questions with a “yes”, you’re right where you should be. Figuring out crypto taxes on your can be intimidating for investors filing their crypto taxes for the first time. So we decided to make things easier for you with this comprehensive crypto tax guide, which covers everything you need to know about crypto taxes in Australia and the rules governing them.
So let’s start by answering the most basic question.
27/07/23- Updated to accommodate ICO, Gifts and Donation Taxes
27/07/23- Updated to accommodate DAO taxes
The Australian Taxation Office (ATO) does not classify Bitcoin and other cryptocurrencies as currency but rather as property. As a result, when crypto assets are sold or disposed of, they are subject to capital gains tax. It's important to note that the ATO includes bitcoin, altcoins, NFTs, and other crypto assets under the umbrella term of cryptocurrencies. Hence, any profits made from the sale of these assets will incur tax obligations.
However, there might be instances where crypto is viewed as an income by the ATO and is subjected to income tax.
There are different tax rules for traders and investors in Australia. Traders are typically subject to income tax, while investors are usually liable for capital gains tax. This distinction applies to both traditional investments and cryptocurrencies.
The ATO has provided clear guidelines to determine whether someone is classified as an investor or a trader. Here is a simplified summary of the guidelines.
According to the ATO, individuals or entities that engage in frequent crypto trades or operate large-scale mining operations to generate a recurring income are considered traders. Income generated from such activities is subject to income tax.
The ATO suggests that individuals who invest in crypto assets with a long-term perspective or engage in casual trading and occasional mining using spare computing power are considered investors. Gains from these activities are subject to capital gains tax. However, it's important to note that investors may also attract income tax depending on the nature of transactions and the source of income.
You pay anywhere between 0-45% in capital gains tax based on the gains you make in a tax year. We have discussed the tax slabs in more detail later in the guide. The tax rates for crypto income are the same as capital gains tax.
Let’s look at an example to better understand how crypto transactions are taxed in Australia.
Consider the following transactions::
14/01/22 - Jack Buys 2 BTC
16/02/22 - Jack buys 2 ETH
18/05/22 - Jack receives 6.25 BTC through airdrops(FMV - $30,000 per token)
13/06/22 - Jack sells 1 BTC (Realised Gain = $10,000)
18/19/22 - Jack sells 1 ETH (Realised Gain = $1,500)
As evident from the above transactions, two disposals were made.
1 BTC sold
A gain of $10,000 was incurred from this disposal
1 ETH sold
A gain of $1,500 was incurred from this disposal
Collective Gain from both disposals = $10,000 + $1,500 = $11,500
Now this gain will be taxed as capital gains.
The mining rewards received by Jack will be treated as income and as such taxed under the income tax laws.
Taxes will be levied on the FMV of the assets upon receipt.
So let’s calculate the FMV of the received assets
FMV of mining rewards = 6.25 * $30,000 = $1,87,500
This is your taxable income base.
Yes, the ATO can track cryptocurrency transactions. The ATO has access to multiple avenues, such as data from cryptocurrency exchanges and blockchain analytics tools, that they can use to correlate individual transactions and identify discrepancies. The ATO may use this information to ensure individuals are reporting their cryptocurrency gains and losses correctly on their tax returns.
As mentioned above, the ATO considers crypto to be a capital asset and therefore their disposal attracts a capital gains tax. The following transactions are considered disposal by the ATO:
In Australia, it is important to understand that capital gains tax is divided into two sub-categories. If you hold your assets for more than one year before selling them, you are eligible for a 50% discount on capital gains. However, if you sell your assets within one year of acquiring them, your gains will be subject to a higher rate of short-term capital gains tax. It is crucial to consider the holding period when calculating your tax liabilities on capital gains in Australia.
The gains you’ve made by buying, selling, spending, or gifting your assets will be taxed based on the total income in a tax year. Mentioned below are the tax slabs divided by income groups:
Determining your capital gains or losses is a simple task, just subtract the cost basis (the price you paid to acquire the asset) from the disposal amount. If the result is positive (selling for more than what you paid), you have a capital gain and the disposal is taxable. If it's negative (selling for less), it's a capital loss, allowing you to offset gains and lower your taxable income.
Calculating your cost basis for can be a daunting task, especially when dealing with a large number of transactions accumulated over a year. However, there are tools available to simplify the process. One such tool is Kryptos, which can automatically fetch transactions from your investment profiles and digital wallets. With Kryptos, you can conveniently calculate your cost basis by adding the price you paid for the asset during acquisition, including transaction fees or gas fees, and convert it to AUD. This automated solution can save you time and effort, providing you with accurate cost-basis calculations within seconds.
Consider the following transactions:
14/01/22 - Amelia bought 1 BTC for $25,000
18/03/22 - Amelia bought 2 ETH for $3,000 each
23/04/22 - Amelia bought 2 BTC for $30,000 each
04/06/22 - Amelia sold 1 BTC for $35,000
29/07/22 - Amelia sold 1 ETH for $4,000
21/03/23 - Amelia sold 1 BTC for $40,000
As evident from the above ledger, three disposals were made. Let us look at each disposal individually.
1 BTC sold for $35,000
Now, Amelia acquired BTC tokens on two separate occasions, one for $25,000 and another for $30,000. We need to identify which one of these tokens was disposed of and we need to rely on a specialized accounting method as suggested by tax authorities.
In Australia, the ATO allows investors to use any accounting method as long as the investment lots can be identified.
We will use FIFO accounting for simplicity. A simple way to understand FIFO or First-In-First-Out accounting method is to consider that the first token you buy is the first one you sell.
So according to the FIFO accounting method, the BTC that was disposed of is the same one that was acquired on 14/01/22 for $25,000.
Cost basis = $25,000
Disposal amount = $35,000
Capital Gain/Loss = Disposal Amount - Cost Basis = $35,000 - $25,000 = $10,000
1 ETH sold for $4,000
Cost Basis = $3,000
Disposal Amount = $4,000
Capital gain = $4,000 - $3,000 = $1,000
1 BTC sold for $40,000
Cost Basis = $30,000
Disposal Amount = $40,000
Capital Gain/Loss = Disposal Amount - Cost Basis = $40,000 - $30,000 = $10,000
However, this disposal is different from the other two. This disposal was made after holding the BTC for over a year. Amelia is eligible for a 50% discount on her tax liabilities.
So actual gain from this transaction is $5,000
Now, collective gain from all three disposals = $10,000 + $1.000 + $5,000 = $16,000
This is the final amount you’ll pay capital gains tax on.
Whether you classify as a trader or investor, losses are an inevitable part of the crypto journey. However, losses can have a silver lining when it comes to taxes. By actively tracking and documenting all your losses, you can utilize them to your advantage.
When you report your losses to the ATO, you become eligible for a tax deduction. This deduction can be applied to reduce your overall tax liability. Moreover, if you have excess losses, you have the option to carry them forward to offset future tax liabilities in subsequent tax years.
To ensure accurate calculations of your capital gains and losses, it is essential to maintain precise records of all your cryptocurrency transactions. This includes details such as transaction dates, cryptocurrency costs, and any other pertinent information that may be relevant for tax purposes.
If you have incurred a loss from theft or other crypto frauds, you may be able to claim a capital loss in Australia.
To claim a capital loss for theft or loss of cryptocurrency, you will need to provide evidence to the ATO that the cryptocurrency was lost or stolen. This may include police reports, insurance claims, or other relevant documentation. You will also need to provide information about the cryptocurrency's cost and the theft or loss date.
While it is not possible to completely avoid paying taxes on your crypto transactions unless you have incurred a net loss during a tax year, there are strategies available to help minimize your tax liabilities. Apart from capital loss write-offs, here are some techniques you can employ to lower your tax bill:
Disposal of Long-Term Assets
Any crypto assets held for over a year are eligible for a 50% CGT exemption(33.33% for insurance companies and eligible super funds). So if you’ve held some of your assets for over a year, you can sell them and pay 50% fewer taxes.
For instance, if you bought 2 ETH tokens back in 2018 for 1,271 AUD and sold them in 2021 for 3,921 AUD. The total gains of 5,300 AUD will only be considered to be 2,650 AUD and will be taxed accordingly.
Assets for Personal Use
According to the ATO, capital gains resulting from personal use assets are not taxed. Cryptocurrency is considered a personal use asset if it is primarily used to buy items for personal consumption. However, if the primary purpose is an investment, generating profits, or conducting business, then cryptocurrency is not considered a personal use asset.
Unclear guidelines surrounding the classification of crypto assets as personal use assets can be a challenge. However, by following best practices, you can increase the chances of successfully demonstrating the personal use nature of your transactions to the ATO.
According to the ATO, for the average investor, any one of LIFO, FIFO, HIFO, and ACB accounting methods can be used as long as each tax lot can be accurately identified. However, if you are classified as a trader or someone who conducts crypto trades as a business, the ATO specifies that you should only utilize either the FIFO or the average cost basis accounting method. It's important to align your accounting method with your investor classification to ensure compliance with the ATO guidelines.
If you’re making an income from crypto assets, you’re liable to an income tax. There are multiple ways you can earn crypto as an income:
Income tax rates in Australia depend on the total income made in a tax year. Given below are the income tax rates based on income:
Calculating crypto income is a pretty straightforward process, all you need to do is add all the individual gains incurred from income-generating transactions and you’ll have your taxable income base.
In Australia, the following crypto transactions are tax-free:
In Australia, cryptocurrency transactions are subject to tax laws and are considered taxable events. Some common crypto transactions that are taxable include:
Mining crypto is not taxable if pursued as a hobbyist, however, you might owe taxes to the ATO if you are involved in mining activities as a business.
Mining as a Hobby
If you're mining cryptocurrency as a hobby, there is no need to report your income on receipt. You'll only be required to pay taxes when you eventually sell those coins. Unlike those who mine cryptocurrency as a business, hobbyist miners don't have the benefit of deducting expenses such as equipment costs, monthly fees, and electricity bills from their taxable income.
Mining as a Business
If your mining activity classifies you as a business, it's mandatory to report the fair value of the received tokens as soon as you receive them. All the figures to be reported must be in AUD, and you are entitled to claim tax deductions for expenses associated with the mining operation, such as equipment, electricity, and so on.
In Australia, staking rewards are considered regular income and are subject to income tax. However, the ATO is yet to offer specific guidance on this matter, leading to debates among crypto stakes. For example, ETH 2.0 stakers faced challenges as they couldn't immediately withdraw and dispose of their assets. This created uncertainty about whether taxes should be paid based on the fair market value of the tokens upon receipt or on the day when investors could access and dispose of them.
Crypto margin trading, futures, and CFDs are taxed as income in Australia. The value of the asset at the time of the transaction is your tax base. The amount is converted to AUD for tax reporting. If the trading activity is considered to be a business, then the individual is eligible to deduct related business expenses, such as trading software, internet costs, and so on.
For personal investment in Australia, individuals can only claim a capital loss from crypto margin trading, futures, and CFDs if the value of the cryptocurrency decreases. This loss can be offset by capital gains from other investments. It is recommended to consult with a professional tax advisor to understand the specific tax implications of these activities and receive personalized advice.
Unlike most tax regimes, gifting crypto is not tax-free in Australia. Regardless of your intentions, the ATO will ask you to pay capital gains tax on gains incurred from the disposal of gifted assets.
However, it’s not bad news for people receiving gifts. Receiving a gift is not a taxable event in Australia, but you need to keep a close record of the fair market value of the asset on the day you receive it. Because you will use this cost basis for calculating gains in case you decide to dispose of these assets.
Crypto donations to Deductible Gift Receipts (DGR) are tax-deductible in Australia, non DGR donations are not tax-deductible.
In Australia, the Australian Taxation Office (ATO) treats Non-Fungible Tokens (NFTs) as taxable property. When selling or transferring NFTs, capital gains tax (CGT) rules apply. If any individual purchases an NFT for personal use and sells it for a profit, the sale will be subject to capital gains tax. However, if an individual acquires an NFT for resale, the sale will be considered a taxable supply and may be subject to goods and services tax (GST).
DAOs are member-owned communities with a shared vision. All the decisions in a DAO are made by the members in the absence of central leadership. DAOs are new-age institutions that aim to democratise decision-making and allow people to have a say in decisions that directly affect them. DAOs are often called the soul of Web3 and enable members to earn rewards in multiple ways. DAO contributors are rewarded for their contributions to the organization, similar to how centralized organizations pay salaries to their employees. Moreover, DAOs pay bounties for one-time projects and redistribute any profits generated through operations.
The ATO is yet to release specific guidance on how income from DAOs is viewed from a tax perspective. We are constantly on the lookout for relevant guidelines and relevant information will be added here as soon as the guidelines hit our radar.
In the realm of cryptocurrencies, ICOs represent opportunities for investors to acquire tokens/coins from an unreleased crypto project. Typically, this acquisition occurs through the exchange of conventional tokens like Bitcoin or Ethereum.
From the perspective of the ATO, this constitutes a crypto-to-crypto trade. The taxable event arises at the precise moment of the ICO transaction when you receive the newly minted tokens. Subsequently, when you decide to sell these tokens at a later point in time, the cost base of that transaction will be determined by the cryptocurrency's value on the date of the ICO, which you initially utilized for the purchase.
While the Australian Taxation Office (ATO) has not provided specific guidelines for DeFi taxation, it does not mean that gain from DeFi transactions are exempt from taxation. Investors engaged in DeFi must apply existing guidance, potentially with the help of a tax professional, to determine their tax obligations.
This may involve Capital Gains Tax at the regular Income Tax Rate, with a 50% reduction for long-term gains when selling, swapping, or using cryptocurrency, or Income Tax based on the fair market value of the coins or tokens received. In summary, DeFi activities in Australia are subject to taxation, and investors should seek professional guidance to ensure compliance.
In Australia, the tax year extends from 1 July to 30 June of the subsequent year. If you are an individual who is personally filing your tax return for the period of 1 July 2022 to 30 June 2023, the deadline for submitting your taxes is 31 October 2023. However, if you choose to file your taxes through an accountant, you have an extended deadline until 15 May 2024 to complete the filing process.
With your reconciled cryptocurrency calculations in hand, you have two options for filing your taxes in Australia. You can choose the traditional method of filling out a paper tax form and mailing it to the ATO or you can opt for the convenient and secure online option through myTax. This online service, associated with the ATO, offers a fast and easy way to prepare and file your tax return, helping you receive your refund sooner.
Here's a step-by-step tutorial on how to file your crypto taxes online using the myTax portal:
You should maintain the following records to avoid complications when filing your taxes with the ATO:
Now that you’re aware of how your crypto transactions are taxed and what forms you need to fill out to complete your tax report, here’s a step-wise breakdown of how Kryptos can make this task easier for you:
If you still need clarification regarding the integrations or generating your tax reports, you refer to our video guide here.
Although there is no legal way to avoid crypto taxes entirely. You can employ some strategies to lower your tax bill in Australia.
Trading fees and losses are tax-deductible in Australia, contingent on whether you’re viewed as an individual investor or a business by the ATO.
In New Zealand, there is an exemption from capital gains tax for cryptocurrency if it is considered a personal use asset. If you purchase cryptocurrency to use it directly to buy something else, and the total value is no more than AU$ 10,000 over a short period, you may be eligible for this exemption.
If you’re involved in mining as a business, you can deduct mining expenses from your tax bill in Australia. You can know more about it in the Are-you-in-business section on the ATO website.
A Bitcoin ETF launched on 27 April 2022, offering a tax-efficient investment option for investors. ETFs track Bitcoin's price and simplify the investment process. Some Bitcoin ETFs may distribute dividends, offering Australian investors potential tax advantages through franking credits. These credits offset corporate taxes paid by the ETF's constituent companies, reducing investors' tax liability.
If you hold on to your assets for more than 12 months before disposing of them, you can get a 50% exemption on the capital gain incurred on the transaction.
1. Can the ATO track crypto transactions?
Yes, the ATO can track cryptocurrency transactions to some extent. The ATO has access to a range of information and data sources, including cryptocurrency exchange data, to help it identify individuals who may not have properly declared their cryptocurrency transactions for tax purposes.
In recent years, the ATO has been taking an increasingly active approach to enforcing tax obligations related to cryptocurrency transactions. This includes using data matching to identify individuals who have not declared cryptocurrency gains or who have underreported their taxable income.
2. Is cryptocurrency legal in Australia?
Yes, crypto is legal in Australia and is considered a capital asset(property) instead of a currency by the ATO(Australian Taxation Office) and taxed accordingly.
3. How are airdrops and forks taxed in Australia?
In Australia, airdropped and forked cryptocurrencies are considered taxable income and must be reported on an individual's tax return. The value of the airdropped or forked cryptocurrency on the date it was received is considered its cost to calculate capital gains tax when it is later sold. If the cryptocurrency is held for 12 months or more, it may be eligible for the capital gains tax discount. Moreover, suppose the airdrop or fork is part of a profit-making scheme or carried out in the course of carrying on a business. In that case, the value of the airdropped or forked cryptocurrency may be subject to ordinary income tax.
4. What happens when I move crypto between wallets, exchange and pools?
As long as you’re moving assets between wallets or exchanges that you own, the event is not considered a taxable event. However, the transaction fees paid to move the assets are considered disposal of assets and are subjected to a capital gains tax in Australia.
Similarly, funds moved from one liquidity pool to another follow the same rule. It’s a non-taxable event in the eyes of ATO.
However, note that it’s essential to keep track of all these transactions to accurately calculate the cost basis for all your assets and that may be an intimidating task for many as their investments are spread across wallets, exchanges, and DeFi protocols.
An intelligent step would be to use an online crypto tax tool like Kryptos, which can easily track all your transactions from across your trading and investment profile and even creates legally compliant tax reports seamlessly with a click of a button. All you need to do is to add all your wallets and investment profiles on the website and let the software do the job for you.
5. What if I can't afford my crypto tax bill?
If you cannot afford to pay your crypto tax bill in Australia, you have several options:
6. Is there a legal way to avoid taxes in Australia?
No, there is no legal way to avoid paying taxes in Australia. It is a legal obligation to accurately report all taxable income, including profits from cryptocurrency transactions, and pay the appropriate amount of tax. Failing to report income and pay the required taxes accurately can result in significant fines and penalties, as well as potential criminal charges. It's essential to comply with all tax laws and regulations in Australia and seek professional advice if necessary.
All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!