The crypto market’s been tough lately, with many taxpayers experiencing losses. Some of these losses have been realised through selling, exchanging, converting or gifting cryptocurrency, while others remain unrealised, with investors still holding crypto that’s dropped in value due to market fluctuations. 

Let’s take a look at how the difference between realised and unrealised losses, and how the Australian Taxation Office (ATO) treats these losses at tax time. 

Understanding cryptocurrency: A refresher on the basics

As we covered in our article ‘How is crypto taxed in Australia?‘, the ATO treats cryptocurrency as a form of property, making it subject to capital gains tax (CGT). We also explained the difference between being classified as an investor versus a trader, which affects how your gains and losses are taxed. 

If you need a refresher on these basics, take a look at our comprehensive crypto tax guide.  

How are crypto losses taxed?

The way your losses are taxed depends on whether you’re classified as an investor or a trader. Here’s what you need to know: 

If you’re an investor (which most people are): 

  • Your realised losses (through sale, exchange, conversion or gifting of cryptocurrency) are treated as capital losses 
  • You can use these losses to reduce your capital gains from crypto or other asset disposals in the same financial year 
  • You can’t use capital losses to reduce your other types of income (like your salary) 
  • But here’s the silver lining: If you don’t have any capital gains to offset this year, you can carry the losses forward to future years until you do have a capital gain to offset against.   

If you’re a trader: 

  • Your realised losses may be used to reduce your other income, not just capital gains 
  • You can choose to use the losses to reduce capital gains, other income, or both 
  • However, there are some rules that limit your ability to reduce other income with trading losses (chat with us if you need clarity on this).  

Realised vs unrealised losses: What’s the difference?

Only realised losses can be used to reduce your capital gains or other income. But what exactly is a realised loss? 

Realised losses 

These are ‘actual’ losses that occur when you:  

  • Sell your crypto 
  • Exchange one crypto for another 
  • Convert crypto to regular currency 
  • Gift your crypto.  

Unrealised losses 

These are ‘on paper’ losses that you’ve incurred due to market fluctuations while you still hold your crypto. You can’t claim these losses until you actually dispose of the cryptocurrency and make them realised losses.  

Need help with your crypto tax? 

Chat with our experienced accounting team

Crypto taxation can be complex, especially when it comes to handling losses. If you’re unsure about anything we’ve covered here, please don’t hesitate to get in touch.  

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This article was written by Tax and Business Services Director Kylie McEwan.

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.