The creation, trade and use of cryptocurrency is rapidly evolving.
If you invest in cryptocurrency, you may need to include a capital gain or loss in your tax return.
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.
Cryptocurrency generally operates independently of a central bank, central authority or government. Any reference to ‘cryptocurrency’ in ATO guidance refers to Bitcoin, or other crypto or digital currencies that have similar characteristics as Bitcoin.
Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.
If you have dealt with a foreign exchange or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.
Transacting with cryptocurrency
A capital gains tax (CGT) event occurs when you dispose of cryptocurrency. If you are involved in acquiring or disposing of cryptocurrency, there are tax consequences.
A disposal can occur when cryptocurrency is:
- sold or gifted
- traded or exchanged (including the disposal of one cryptocurrency for another)
- converted to fiat currency (a currency established by government regulation or law such as Australian dollars), or
- used to obtain goods or services.
If a capital gain is made 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.
If the disposal is part of a business you carry on, the profits made on the disposal will be assessable as ordinary income and not as a capital gain.
While a digital wallet can contain different types of cryptocurrencies (bitcoin, etc) each cryptocurrency is a separate CGT asset.
Record keeping for cryptocurrency
It is vital to maintain accurate records for all cryptocurrency transactions, including if the cryptocurrency is being used as an investment, for personal use or in business:
- transactions dates
- cryptocurrency value in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
- transaction details i.e. what it was for and who the other party was
To accurately calculate your tax and meet your obligations, the typical records that should be kept include:
- receipts of purchase or transfer of cryptocurrency
- exchange records
- records of agent, accountant and legal costs
- digital wallet records and keys
- software costs related to managing your tax affairs
You can ask your accountant or use third-party software to help meet your record-keeping obligations and work out your tax.
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