Crypto and Tax: Are You Reporting It Correctly?

Crypto Isn't Outside the Tax System

Buying and selling cryptoassets has become increasingly common, but there's one point investors shouldn't overlook:

Crypto can have tax consequences.

Whether you're holding Bitcoin for the long term, swapping tokens or experimenting with different cryptoassets, it's important to understand when a transaction needs to be considered for Australian tax purposes.

How Is Crypto Taxed?

For many individual investors, cryptoassets are held as investments and are treated as capital gains tax (CGT) assets.

This means that when you dispose of crypto, you may make a capital gain or capital loss.

If your disposal proceeds exceed the asset's cost base, you may have a capital gain. If they are lower, you may have a capital loss.

The ATO confirms that crypto held as an investment is generally subject to the CGT rules.

What Counts as a Disposal?

This is where crypto can catch people out.

A disposal isn't limited to selling your crypto and transferring Australian dollars into your bank account.

A CGT event may occur when you:

• Sell a cryptoasset

• Exchange or swap one cryptoasset for another

• Convert crypto into Australian dollars or another fiat currency

• Use crypto to purchase goods or services

• Gift or donate crypto in certain circumstances

For example, exchanging Bitcoin for another cryptoasset can trigger a CGT event even though you haven't received any cash.

What About Moving Crypto Between Wallets?

Transferring crypto between wallets you own generally isn't a disposal, provided you retain ownership of the asset.

However, don't assume every element of the transaction is tax neutral. For example, if some crypto is disposed of to pay a network fee, that component can have CGT consequences.

Capital Gains and Capital Losses

When a CGT event occurs, you need to determine the Australian-dollar value of the transaction and calculate the resulting capital gain or loss.

Capital losses can generally be used to reduce capital gains.

However, a net capital loss cannot simply be deducted from your salary or other ordinary income. It may instead be carried forward for use against eligible capital gains in later years.

Good Records Are Essential

For many crypto investors, record keeping is actually the hardest part.

You should maintain sufficient records to identify your acquisitions, disposals, transfers and other crypto transactions, including relevant dates and Australian-dollar values.

The ATO specifically highlights records for purchases, transfers and disposals, wallet activity, airdrops, staking rewards and associated costs.

It's also sensible to regularly export your transaction history from exchanges rather than assuming those records will always be available when you eventually need them.

Crypto Tax Can Get Complicated

The CGT treatment described above generally relates to crypto held as an investment.

Different tax consequences can arise if you're carrying on a crypto trading business, receiving staking rewards or airdrops, earning crypto as income, or using cryptoassets as part of a business. The ATO notes that the way you interact with crypto determines whether amounts may need to be reported as income or as capital gains or losses.

At Lockwood & Ward, we can help review your crypto transactions, determine the appropriate tax treatment and make sure the relevant gains, losses and income are correctly reported.

If you've bought, sold, swapped, staked or received crypto during the year, speak to our team before lodging your tax return.

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