Digital Assets & Your Tax – Reporting Cryptocurrency On Your Return

Posted on 24 May '22 by , under tax.

Cryptocurrency is a hot topic of discussion in the taxation industry, due to its digital nature as an asset and the reporting requirements behind the tax on its earnings 

Cryptocurrency may seem like another form of money to you (albeit in digital form), but it isn’t to the Australian Taxation Office (ATO).

 From their point of view, cryptocurrency is just another type of asset that people invest in, just like when they invest in shares.  The tax treatment is fundamentally the same.  If you buy for a dollar and then sell for $11 dollars then you have to deal with a ten dollar profit. That profit could be a capital gain or it could be quantified as simple business income.  

What’s The Difference?

If you are a simple investor in crypto, you may have bought $10,000 worth of the currency, and held onto it for five years to then sell it for $25,000. The $15,000 “profit” from that sale would most likely then be treated as a capital gain.  You would be required to pay tax on half of that capital gain at your marginal rate.  

But let’s say you are trading in crypto on a regular basis as well as mining for coins.  This might indicate that you are actually in the “business” of trading crypto (just as people can be in the business of share trading).  In this case, you are taxed on your profits as income and not as capital gains.  

Normally this wouldn’t make a big difference, as a trader does not tend to hold their stock for more than a year. This means that they would not be entitled to the capital gains tax discount, as it requires you to hold the asset for more than 12 months to be eligible.

It is also very important to understand that the ATO receives the trading data from all the crypto trading houses (including overseas trading houses). You won’t be able to get away without declaring any trading profit from any crypto that you own on your income tax returns this year. 

Depending on the market, people may be able to make millions of dollars on the asset. However, the tax consequences of cryptocurrency can be fairly complicated and may require the assistance of a professional. If you are unsure as to how to treat your crypto gains and losses, please come and have a chat with us.