What is Cryptocurrency?
Cryptocurrency, often known as crypto, is a form of digital or virtual currency. Unlike traditional currencies, it operates independently of any central authority and lacks physical coins or notes. Transactions are conducted digitally, distinguishing crypto from conventional money. As crypto is categorized as an asset, it falls under distinct tax regulations compared to traditional currencies.
How is Cryptocurrency Tracked?
Cryptocurrency transactions are recorded on a blockchain, a decentralized digital ledger replicated across multiple locations globally. This ledger ensures transparency and security by maintaining identical transaction records across all copies.
Tax Implications of Owning Cryptocurrency
Given the Australian Taxation Office's (ATO) increased focus on cryptocurrencies in recent years, understanding their tax implications is crucial. If you've engaged in activities such as selling, buying, or earning interest from cryptocurrency during the financial year (1st July to 30th June), you're required to disclose these transactions in your next tax return.
Tax Treatment in Australia
For tax purposes, cryptocurrencies are treated as "capital gains tax (CGT) assets." This classification means that transactions involving crypto, such as trading, selling, or using it to purchase goods, are subject to capital gains tax. Unlike money or foreign currency, the ATO considers crypto as property.
ATO Oversight and Reporting
If you hold an account with an Australian cryptocurrency provider, the ATO likely has access to your transaction data, potentially dating back to 2014. The ATO gathers information from exchanges and wallet providers to ensure compliance, including data from international exchanges.
Calculating and Reporting Crypto Gains
A capital gain occurs when you dispose of cryptocurrency, reflecting the difference between its acquisition and disposal values. The cost base includes purchase prices and related fees. Capital losses must also be reported, potentially reducing overall tax liability through capital loss claims.
Tax Treatment of Crypto-to-Crypto Trades and Wallet Transfers
In Australia, exchanging one cryptocurrency for another constitutes a taxable event. However, transferring crypto between your own wallets for personal use doesn't trigger tax implications, provided you maintain accurate records of the coins' original cost.
Preparing Your Cryptocurrency Tax Return
To file your crypto tax return accurately, gather records of all transactions, including purchases, sales, and interest earned. Utilize a crypto tax report from a reputable provider to summarise your profits, losses, and capital gains for the financial year. Ensure all necessary personal income tax items are included in your return.
Given the complexity of crypto tax regulations, consulting a qualified tax professional such as Symmetry Accounting & Tax can help ensure compliance and accurate reporting.
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