Calculating capital gains on cryptocurrency (crypto) transactions in Australia is crucial for individuals and businesses involved in buying, selling, or trading digital assets. The Australian Taxation Office (ATO) treats cryptocurrencies as property for tax purposes, and capital gains tax (CGT) may apply when you dispose of them. The following highlights some of the key factors that need to be considered to comply with tax rules, but also to make calculating any capital gains simpler.
Understanding CGT Events
CGT events trigger when you dispose of crypto, such as selling it for fiat currency (like AUD), exchanging it for another crypto, or using it to pay for goods and services. Each disposal is considered a separate CGT event.
Calculating Capital Gain or Loss
To calculate your capital gain or loss on crypto transactions, follow these steps:
- Calculate the proceeds: This is the AUD value of the crypto you received when you disposed of it.
- Deduct the cost base: Subtract the cost base from the proceeds. The cost base includes the purchase price of the crypto, incidental costs of acquiring or disposing of it (like brokerage fees), and any other associated costs.
Determining Holding Period
The capital gain or loss is determined based on how long you held the crypto:
- Short-term: If held for less than 12 months, taxed at your marginal tax rate.
- Long-term: If held for 12 months or more, eligible for a 50% CGT discount for individuals (or a one-third discount for complying super funds), then taxed at your marginal rate.
Record-Keeping
Maintain detailed records of all crypto transactions, including dates of transactions, the value in AUD at the time of the transaction, and transaction details (e.g., receipts, exchange records). Good record-keeping helps accurately calculate CGT liabilities and substantiate claims with the ATO.
When is Crypto not a CGT Asset?
If you hold crypto for a short period of time and use it to buy items for personal use it may be considered a personal use asset and be exempt from CGT.
A business may accept crypto as payment for services provided, which is then treated as ordinary income. Depending on how this crypto is used in the business it may remain exempt from CGT.
Seeking Professional Advice
Due to the complexity of crypto taxation, consider consulting with a tax professional or accountant with expertise in digital assets. They can provide personalised advice based on your transactions and ensure compliance with ATO regulations.
Accurately calculating capital gains on cryptocurrency transactions in Australia involves understanding CGT events, determining the cost base, and maintaining meticulous records. By following these guidelines, individuals and businesses can effectively manage their tax obligations related to cryptocurrency transactions. Please contact our Accounting team at YBM for advice or assistance with your crypto matters.