While cryptocurrency no longer dominates headlines as it once did, its popularity continues to grow steadily. More and more Australians are purchasing crypto for trading, investment opportunities and as an alternative payment method, but many misunderstand the tax implications. 

According to the University of Queensland, 1.5 million cryptocurrency owners don’t understand how crypto is taxed in Australia.   

As the Australian Taxation Office (ATO) ramps up its crypto surveillance and data matching program, it’s more important than ever to understand your obligations and stay compliant.  In this article, we explain the basics of how crypto is taxed in Australia, the difference between crypto trading and investing and the importance of accurate record-keeping.

What is cryptocurrency?

Cryptocurrency (or crypto for short) is a digital or virtual currency that uses cryptography for security. Cryptography is the practice of sending secure, encrypted messages between two or more parties (fun fact: ‘crypto’ means secret in Greek).  

Unlike traditional government-issued currencies (also known as fiat currencies), cryptocurrency is decentralised, meaning no central authority controls or regulates it. Instead, it uses a system where transactions are recorded, and new units are issued without intermediaries like banks.   

The value of crypto isn’t determined by an exchange (like shares are on the ASX, for example) but by the amount a trader is willing to pay for it. Bitcoin is the most well-known cryptocurrency, but there are many others. 

How much tax do you pay on crypto in Australia?

The key thing to remember is that the ATO doesn’t view cryptocurrency as money. It currently considers crypto as property, which means it’s treated as a capital gains tax (CGT) asset for tax purposes.   

When you sell or dispose of cryptocurrency, you’re subject to CGT. Your capital gain (or loss) is the difference between what you paid for it (the cost base) and what you sold it for (the capital proceeds). This gain is taxed at your marginal tax rate. 

For example, if you buy an apartment for $200,000 and later sell it later for $300,000, your capital gain will be $100,000. 

If you make a loss on the sale, you can use the loss to offset other capital gains, but you can’t deduct it from your ordinary income. 

The exact same principles apply to crypto – many different transactions involve the ‘disposal’ of crypto, and these disposals may result in capital gains being realised and tax being payable on the gains.  

Crypto trading vs investing

It’s important to know that the taxation of cryptocurrency activity differs for taxpayers who are considered crypto investors versus those who are deemed crypto traders. Let’s take a look at the differences between them:   

Crypto investors

The ATO assumes that most taxpayers fall under the investor category, even if they regularly trade cryptocurrency. The key point is the intention behind your trading. If your dealings are primarily for personal investment and to achieve long-term gains, you’re considered an investor, even if you regularly trade in cryptocurrency, where your dealings are predominately for personal investment and result in long-term gains. 

Crypto traders

A trader is taxed differently than an investor. Any gains or losses are treated as income, not capital gains.   

To be considered a trader, you need to demonstrate that you’re carrying out your trading activities in a manner that’s similar to running a business for income tax purposes, aiming to profit from short-term changes in the market and pricing trends.  

However, the ATO doesn’t necessarily consider you a trader just because you regularly acquire and dispose of crypto. They look at the following factors to determine that you’re carrying on a business:   

  • The nature and purpose of the activities you’re undertaking 
  • The repetition, volume and regularity of the activities 
  • Whether a business plan exists and/or the activities are organised in a business-like way. 

Many factors influence your investor or trader classification, so we recommend seeking professional advice. 

When do I have to pay taxes on cryptocurrency?

You’ll need to assess any capital gains or profits each time you trade, sell, or gift crypto assets or have any other kind of disposal event. Here are some common scenarios: 

Crypto-to-crypto transactions

The ATO sees each type of cryptocurrency as a separate asset. Swapping one for another (like Bitcoin for Ethereum) will result in a CGT event. You’ll need to calculate the gain or loss in Australian dollars. 

If the cryptocurrency you receive can’t be valued, the capital proceeds from the disposal are worked out using the market value of the cryptocurrency you disposed of at the time of the transaction. 

Example of a crypto-to-crypto CGT calculation:  

You buy 100 units of Bitcoin for $10,000 ($100 per coin). A week later, you exchange 10 Bitcoins for 20 Ethereum worth $2,000. 

The capital gain is calculated by deducting the capital proceeds of $2,000 (the market value of Ethereum at the time of the exchange) from the cost base of $1,000 (the purchase price of 10 units of Bitcoin at $100 per coin). 

Your capital gain is $1,000 ($2,000 – $1,000), and you’ll be taxed on the $1,000 gain at your marginal tax rate. 

If you held the Bitcoin for more than 12 months before the gain took place, the gain may be discounted by 50% under the CGT discount provision. 

Converting crypto to a fiat (aka regular) currency

If you’re considered an investor and exchange your crypto for a fiat currency (e.g., AUD, Euro, USD, etc.), this is a CGT event. You’ll be taxed on any capital gains realised at the time of the conversion. 

If the proceeds from the cryptocurrency disposal are more than the cost base, you’ll make a capital gain, and you’ll be taxed on that gain at your tax marginal rate. However, if you held the crypto for more than 12 months, only 50% of the gain is taxable under the CGT discount provision. 

If the disposal proceeds are less than the cost base, you’ll make a capital loss. Realised capital losses can be offset against other gains in the same income year or carried forward to future years.  

If you’re considered a trader and you make a profit by exchanging cryptocurrency for fiat currency, the profit will be assessed at your marginal tax rate. Any losses are treated as income losses and can be offset against other profits or income you generate. 

Personal use asset exemption for cryptocurrency

Here’s something interesting: there’s a personal use exemption for assets bought for less than $10,000 and used mainly for personal enjoyment. If this exemption applies, any gain or loss from a CGT event is disregarded for tax purposes. 

But here’s the catch: the ATO generally doesn’t view cryptocurrency as a personal use asset. They believe most people use crypto to make a profit, either through income or capital growth. So, it’s unlikely this exemption will apply to your crypto transactions. 

The ATO looks at a few factors to determine if crypto is a personal use asset: 

  • How long you’ve held it (the longer you hold it, the less likely it’s for personal use) 
  • How you’re using it 
  • Why you’re holding onto it.  

Our advice? If you’re considering claiming this exemption, chat with a professional first. It’s a tricky area, and we can help you navigate it. 

Proceeds from staking rewards

Some cryptocurrencies allow ‘staking’. Simply put, staking is like earning interest on your savings, but with cryptocurrency. When you stake your crypto, you’re essentially putting it to work by participating in the network’s operations. You’re letting the network use your crypto to help verify transactions and maintain security. In return for lending your crypto to the network, you earn rewards, typically in the form of additional cryptocurrency. 

Staking is a way to earn passive income from your crypto without selling it. Think of it as the crypto version of a term deposit or high-yield savings account. 

The ATO doesn’t see income from staking rewards as a CGT event. Instead, they treat it as regular income, like interest from your savings account. This means you must declare it as part of your regular income on your tax return. 

Receiving new cryptocurrency after a chain split

A chain split occurs when two or more competing versions of a blockchain exist. These versions share the same history up to a point, at which point their rules diverge. 

If you receive new cryptocurrency because of a chain split, you don’t immediately make a capital gain or derive ordinary income. But here’s the important bit: when you eventually sell this new crypto, your cost base is zero. This means the entire proceeds will be a capital gain. 

Working out which crypto is the ‘new’ asset from a chain split can be tricky. You need to look at the rights and relationships of each cryptocurrency you hold after the split. If one has the same rights as the original, it’s considered a continuation of the original asset. 

Claiming a loss from lost or stolen cryptocurrency

Losing access to your cryptocurrency private key or having it stolen is a nightmare scenario. But if this does happen to you, you may be able to claim a capital loss. 

To claim this loss, you’ll need to prove that the crypto is legitimately lost. Remember, if something can be replaced, it’s not considered ‘lost’ for tax purposes. A private key can’t be replaced, so that’s where you might have a case. 

To claim a capital loss for lost or stolen crypto, you must be able to provide the ATO with evidence like: 

  • When you bought and lost the private key 
  • The wallet address linked to the private key 
  • What you paid for the lost or stolen crypto 
  • How much crypto was in the wallet when you lost access 
  • Proof that you controlled the wallet 
  • Evidence that you have the hardware storing the wallet 
  • Records of transactions to the wallet from a verified exchange account to which you hold a verified account or is linked to your identity.    

What happens if I lose money on crypto?

We explain how the ATO deals with crypto losses in our article, ‘What happens to my crypto losses at tax time?‘.

The importance of crypto record keeping

We can’t stress this enough: keeping detailed records of your crypto transactions is crucial. The ATO requires you to keep records of: 

  • Transaction dates 
  • The value of the crypto in Australian dollars at the time of each transaction 
  • The purpose of each transaction and who the other party was (even if it’s just their crypto address).  

You should keep documents like: 

  • Receipts for buying or transferring crypto 
  • Exchange records 
  • Records of any agent, accountant, or legal costs 
  • Digital wallet records and keys 
  • Software costs related to managing your crypto taxes.  

Given how complex crypto record-keeping can be, we recommend using specialised software. We use Crypto Tax Calculator, an Australian-built platform that compiles and analyses data in line with our tax laws. Depending on how active you are with crypto, a tool like this can be a lifesaver come tax time. 

Need help navigating your cryptocurrency tax obligations? 

Chat with our experienced accounting team 

Crypto taxation is complex, and it’s constantly evolving. Please feel free to reach out if you’re feeling overwhelmed or unsure about any aspect of your crypto taxes. Our team of specialist accountants is here to help. 

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This article was written by Tax and Business Services Director Kylie McEwan and Senior Accountant Tamara Wright.

Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.