Cryptocurrency has exploded in popularity the world over. Whether used as an investment, store of value or to disconnect from the worlds fiat banking system, crypto is all the rage.

Whether you’re already investing in currencies like Bitcoin or Ethereum, or perhaps considering dipping a toe in the pool, you need to understand the tax implications in Australia.

Many Australians have been somewhat confused by these duties around crypto, and we broke that down for you.

Let’s jump into our crypto tax guide in Australia for 2022.

Cryptocurrency explained

Before we leap into crypto tax, let’s do a brief overview of what crypto is and how it functions.

Put simply: Cryptocurrencies are non-fiat currencies which exist on a blockchain instead of within the banking system.

Cryptocurrency lives on the blockchain

Crypto currencies operate by not only being non-fiat currencies, unbeholden to traditional government control, they also exist solely on the blockchain. This nature of crypto creates an emerging and complex relationship with the taxation system.

What’s fiat currency?

A fiat currency is simply any currency that is created by a government regulation or law. For example, the Australian dollar is a fiat currency, and bitcoin is absolutely not.

What exactly is a blockchain?

A blockchain is a non-hackable distributed ledger which exists across a network of computers. By distributing the blockchain database across a network, no single entity can change the database in any way.

Every ‘block’ in the ‘chain’ will duplicate and record transactions using an exclusive cryptographic signature.

Cryptocurrency in Australia

Cryptocurrencies are a common asset or form of payment on Australian shores. Although the ATO does not see crypto as an actual currency, it none-the-less can operate in this manner by being traded for goods or services, or cashed out as Australian dollars.

So how many people own crypto in Australia?

According to a 2021 review by the 2021 Independent Reserve Cryptocurrency Index (IRCI), Australians are increasingly drawn to crypto, many for investment purposes.

It’s no surprise that close to 29% of Australians own, or have owned, crypto.

According to the report, this is up from 18.4% just a year earlier in 2020.

As for popularity, bitcoin is the clear favourite, with 21.1% of Australians owning it, with Ethereum a distant second.

How the ATO classifies cryptocurrencies

The ATO published a guideline on how cryptocurrency can be integrated with existing tax law in November 2014.

The Australian government doesn’t consider cryptocurrencies as money. It is neither viewed or classified as either Australian dollars or fiat currency. Instead, the value perceivably held in Crypto is classed as ‘property’ or an ‘asset’.

As the ATO explicitly states,

“The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain.”

Crypto tax Australia

Do you have to pay tax on cryptocurrency in Australia? Yeah, you do. Let’s have a look at the tax implications of holding crypto.

Cryptocurrencies are generally considered an assett for tax purposes and are subject to capital gains tax (CGT) and earnings tax in Australia. This means it has nothing to do with income tax or taxable income.

Let’s see what the ATO says about crypto and capital gains taxes:

“A capital gains tax (CGT) event occurs when you dispose of your cryptocurrency. A disposal can occur when you:

  • sell or gift cryptocurrency
  • trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
  • convert cryptocurrency to fiat currency (a currency established by government regulation or law ), such as Australian dollars, or
  • use cryptocurrency to obtain goods or services.

If you make a capital gain on the disposal of cryptocurrency, some or all of the gain may be taxed. Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded under ‘personal asset exemption’.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.”

What information does the ATO collect for Australian cryptocurrency tax?

Since there are tax implications, the Australian Tax Office requires that you keep a number of records pertaining to your crypto holdings.

For tax treatment, you’ll need to record:

  • dates of transactions
  • Australian dollar value of transaction
  • reason for trade
  • details of any other party involved in the trade (even cryptocurrency address)
  • digital wallet records
  • any fees associated, such as accountants, IT, or legal services
  • any software costs

Lost or stolen cryptocurrencies

In cases when the cryptocurrency you are acquiring has lost its value, you may claim it as a capital loss.

It depends on the possibility of restoring an item in its entirety. When exchange transactions were hacked and your return/remuneration wasn’t paid out by that exchange you will no longer be able to claim capital losses.

In the case of losing a wallet key, all of your claims must be proven with evidence.

Crypto taxes and businesses

Capital gains does not apply if you hold, pay or buy crypto during the course of running your business.

For businesses, ‘trading stock’ rules apply, not capital gains.

This means that any proceeds from the sale of cryptocurrency, held as trading stock in your business, are seen as regular income.

Since it’s now income, the cost of acquiring cryptocurrency is tax deductible