If you think your crypto is tax free, think again. ATO Assistant Commissioner Tim Loh says they know who has crypto investments. They use data matching capabilities. Anyone who holds crypto, which is about 500,000 Australians, can expect to get a message from the tax department when lodging a tax return through the myTax portal. Or your tax agent may receive a message reminding them to include crypto gains and losses as part of tax returns.

Trading in cryptocurrency has become more popular than ever in the last year.

Definition for tax purposes

The ATO defines cryptocurrency as property rather than money. It is an asset that is subject to capital gains tax (CGT). When you make a capital loss or gain on crypto, the difference between what you paid for it and whatever the market value is at the time of exchange is calculated in Australian dollars. So if you make a profit, it must be added to your assessable earnings for the year.

Taxing cryptocurrency

Taxing crypto is not simple. Generally, you do not have to pay GST or income tax on it unless you are a business or you use it to pay for goods and services. Crypto is also tax exempt from CGT when you:

• Use it to pay for goods and services that are for personal use.
• The cost of the crypto you use for a transaction is less than $10,000. This comes under the CGT personal use exemption.

Where you paid more than $10,000 for the crypto you use in a transaction, you will have to pay CGT. The capital gain or loss is calculated as the difference you paid when you acquired it and its value at the time of disposal.

Cryptocurrency use in business

As a business, you need to record, in Australian dollars, any crypto you receive as payment for goods and services for tax purposes.

Any time you use crypto to buy business items, you can receive a tax deduction for the value of the item. But CGT may apply when you dispose of crypto through the business. This is a complex area so talk to your accountant.

Cryptocurrency mining income

Businesses that mine crypto must include any gains from transferring it to someone else as assessable income. Any losses you incur through mining could also be eligible for a non-commercial loss. Losses have to go through a series of tests first so they are not automatically offset against your income. Any crypto you hold as stock as part of your business of crypto mining and selling, the ATO considers this to be trading stock so you need to declare it at the end of each financial year.

Operating a cryptocurrency exchange service

When your business is buying and selling crypto as an exchange service, any gains or losses are part of your yearly assessable income. But you can claim any expenses associated with the service, such as acquiring crypto to sell, as tax deductions.

Disposing cryptocurrency acquired as an investment

The tax rules for trading crypto for business or profit rather than buying and selling it as an investment are similar to share traders and investors. If you hold onto your crypto as a long term investment, you are an investor. But if you are buying and selling it to make a profit in the short term, you are probably a crypto trader.

An investor does not have to include the profits from the sale of their investment as assessable income and cannot claim any deductions. CGT may apply even if the value of the crypto is not more than $10,000, but you can claim a personal use exemption if you can prove its disposal was for personal use.

When crypto transactions are about making a profit, the profits when you dispose of the crypto become part of your assessable income. The ATO regards you as a trader rather than as an investor.

Keeping records

If you are involved buying or selling crypto, you need to keep records including:

• Transaction details including the date of each one.
• The value in Australian dollars at the time of the transaction.
• Any expenses such as commissions and fees paid.
• Details of the other party.

If you are involved with or have cryptocurrency, talk to your accountant about the tax implications when having your tax prepared. Not declaring it is not an option as there is a good chance the ATO already knows.