Tax Tips for Australian Crypto Traders

Tax season is just around the corner, take a look at our five vital crypto trader tax tips!

Author: Aziz Hassan
May 11, 2021 · 5 min read

Cryptocurrency (crypto) has been steadily rising in popularity over the past decade, with its most eventful years taking place recently. With millionaires being made every day out of Crypto trading, and the internet is overrun with Dogecoin memes, many inexperienced investors have been drawn to this bullish investment prospect.

 

 

 

 

 

 

 

 

 

If you find yourself considering getting into Crypto trading, or are already actively involved in the market, then there are some important tax implications that pertain to both trading and investing in these new digital currencies.

Australia considers Crypto investments to be a capital gains tax (CGT) asset. Crypto transactions, for example, are exempt from the capital gains tax, as long as they are used to buy goods or services.

Let’s take a closer look at some more details regarding how to handle your Crypto gains when it comes to tax time:

 

1. Claim your deductions

Business deductions are incredibly important for anybody dealing with Crypto, and many traders are unaware that you can claim these deductions.

The deductions that are accepted will follow the same rules as deductions made when running a home office, so it is worth it to keep up with your record-keeping. Records should focus on tracking the following:

  • Training courses
  • Crypto Software
  • Mining equipment
  • Computer/laptop and equipment
  • Associated electricity costs
  • Office furniture
  • Tax Advisor Fee
  • Rent fees (It’s important to discuss the specifics of this with your accountant).

Note that if the above reduces your business profit to zero, losses are carried forward.


2. Donate some of your Crypto

Much like normal charity donation taxation rules, you can often significantly benefit from donating a part of your investment into charities.

These benefits include:

  1. You are able to avoid any capital gains tax being applied to your Crypto investment holdings.

 

  1. You are offered a deduction option on your Schedule A, helping to reduce both your Crypto and non-Crypto investment income.

 

To provide an example: You have previously bought one Bitcoin for $1,500, however now it is worth over $12,000. If you choose to donate this Bitcoin to a charity, you will be allowed to avoid up to $10,500 (The difference in your coin’s increased value) and claim that $10,500 as a deduction.


3. Capital Gains Tax Concession

You can often reduce your capital gains by 50% when you choose to sell your Crypto. This is only for Crypto that you have held onto for more than a year.

For example, you buy one Bitcoin for $10,000 in 2019 and invest it for 15 months. When you sell the coin, it is now worth $60,000, netting you a profit of $50,000. Assuming you have no other capital losses from other assets, you will receive a 50% discount on your CGT.

This means you will only pay tax on $25,000 of your $50,000 profit margin.


4. Harvest Tax Losses to Offset Crypto Gains

It is often a good idea to sell up your losing positions right before the tax year has ended. This allows you to claim your tax losses to offset any gains you have made over the financial year.

This is a powerful method of preventing a large tax bill, in the event that your ledger is running more red than usual over a financial year. A reality that many seasoned traders will face in their careers.


5. Assets for personal use

The ATO will not apply a tax on capital gains that are derived from assets for personal use. However, any asset that is considered for personal use must be solely used to purchase goods and services.

Within this context, Crypto that you use for trading will not be considered a personal use asset. However, you can split a portion of your Crypto into a personal use state if you plan to use it for goods and services.

To assist with separating personal & investment;

  • Manage a separate wallet for Crypto. One for personal use and one for investment crypto. This makes record keeping much easier, as well.
  • Trade more frequently from your personal-use wallet to avoid having it considered an investment asset (The longer Crypto sits in your personal wallet, the more likely it is to be considered an investment asset once it is used).
  • Keep detailed records and receipts of everything you buy with your personal Crypto, allowing you to clearly show the personal use nature of your personal use Crypto.

 

IMMUNITY ACCOUNTING CAN HELP

To find out more speak to one of our tax consultants by clicking this link to book an appointment online or call 1300 514 191.