Cryptocurrency used to be part of the wild west – a far-off gold rush on the internet’s frontier. Those days are long gone. Cryptocurrency is well known, and so is mining for crypto. It’s become so well known that regulatory authorities are starting to catch-up in a big way; here in Australia, that’s certainly true.
For many investors, cryptocurrency still feels different -forward-thinking, cutting edge, and the future of finance. But even the future of finance is subject to tax law. Did you know that disposing of your cryptocurrency (whether you’re gifting it, selling it, or using it to buy new, different cryptocurrency) is subject to a Capital Gains Tax? The Australian Tax Office (ATO) specifically states:
“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.”
In April 2019, the ATO launched an initiative aimed at better understanding cryptocurrency transactions and the activity of Australians. Earlier this year, many Australians may have received a letter advising them of their obligations under Australian Tax law. Now, if you’re new to the crypto game, hey, no worries – but make sure you understand your obligations from this point forward. If you’re a seasoned cryptocurrency user, you may need to assess whether your past tax returns now require amendment.
In most circumstances, cryptocurrency is subject to Capital Gains Tax. However, there are limited circumstances where this does not apply. One such situation falls under the Personal Use Asset designation, where an individual may buy or hold cryptocurrency for a short period in order to purchase other goods or services with the currency. However, if the individual is using only a small portion of their held cryptocurrency, this is no longer considered personal use.
The regulations are complex, and each circumstance is likely to have a degree of subjectivity baked in – so it’s worth it to consult a professional to ensure you’re on the right side of tax law as cryptocurrency evolves in legislation worldwide.
How can Halkin Business Partners help?
Our expert tax advisers can help you understand your obligations in reporting cryptocurrency activity on your tax returns and assist in building a solid financial strategy that maximizes your cryptocurrency investments.