Did you know that over 1 million Australians own cryptocurrency, yet many are unaware of their tax obligations?
In recent times, the Australian Taxation Office (ATO) has been increasingly focusing on cryptocurrency transactions, with data-matching programs designed to catch undeclared crypto gains.
Understanding how to properly calculate tax on your cryptocurrency is essential to avoid penalties and interest charges.
So this blog helps you to calculate capital gains tax, the tax obligations surrounding cryptocurrency, and some important considerations when preparing your tax return.
Is Cryptocurrency Subject To Tax In Australia?
In Australia, cryptocurrency is treated as an asset, not currency, which means capital gains tax applies whenever you dispose of it. A disposal isn’t just selling crypto for Australian dollars (AUD). It includes swapping one crypto for another, spending it on goods or services, or even gifting it.
Each of these actions triggers a CGT event, and you must report the outcome in your tax return. If you hold your crypto for over 12 months before disposing of it, you qualify for a 50% discount on the taxable gain, which can significantly reduce what you pay tax on.
Disposals create either a capital gain or a capital loss. A gain happens when the value at disposal exceeds what you paid to acquire it, while a loss occurs if the value drops below your initial cost.
These gains and losses affect your income tax, as net capital gains are added to your taxable income. Calculating this correctly ensures your estimated tax return reflects your true liability.
When Do You Need to Pay Tax On Cryptocurrency?
You’ll need to pay tax on cryptocurrency when you “dispose” of it.
A disposal occurs when:
- You sell cryptocurrency for Australian dollars
- You exchange one cryptocurrency for another
- You use cryptocurrency to purchase goods or services
- You gift cryptocurrency to someone else
It’s important to note that simply buying and holding cryptocurrency does not trigger a tax event. The tax obligation arises only when you dispose of it.
How To Calculate Tax On Cryptocurrency?
The process for calculating the tax on cryptocurrency follows the same basic principles as other assets. You need to determine the difference between what you paid for the crypto (the cost base) and the amount you received when you disposed of it (the sale price). If there is a gain, then you will owe tax on that amount.
Tax on cryptocurrency basically follows the same principles of taxation generally applicable to all other assets. Calculate your cost base with the price you received on disposing of the crypto: If there is a gain, you will have to pay tax on the amount gained.
Cost Base
Your cost base is the amount you paid to acquire the cryptocurrency converted into AUD at the time of purchase. This includes not just the price for the crypto itself but also any associated fees, such as transaction or network fees.
Sale Price
At the time of disposal of your cryptocurrency, you will need to work out the fair market value of the cryptocurrency, translated into AUD. This is an amount you received when selling or exchanging it, or if spent on goods or services, the market value.
To calculate your capital gains tax, simply subtract the cost base from the sale price. If the result is positive, you have a capital gain and will need to pay tax. If it’s negative, you have a capital loss.
Capital Gains Tax Rates For Cryptocurrency
The amount of capital gains tax you’ll pay depends on your marginal income tax rate and how long you’ve held the cryptocurrency.
Here’s a quick overview of the tax rates:
| Holding Period | Tax Treatment | Example |
|---|---|---|
| Less than 12 months | 100% of gain added to taxable income | $10,000 gain = $10,000 added to income |
| 12 months or more | 50% of gain added to taxable income | $10,000 gain = $5,000 added to income |
When Crypto Becomes Income?
Sometimes, crypto isn’t taxed as a capital gain but as income. This happens if you earn it directly, like receiving a salary in crypto, staking rewards, or airdrops.
Such amounts go straight into your tax return as assessable income, taxed at your marginal rate without the 50% discount. Investors must distinguish this from CGT events to avoid overpaying.
DeFi activities—like yield farming or liquidity mining—can also generate income. The ATO taxes these earnings based on their AUD value when received. Knowing the difference keeps your estimated tax return accurate.
How To Minimise Your Cryptocurrency Tax?
There are several legitimate strategies to minimise your cryptocurrency tax obligations:
- Hold for 12+ months: By holding your cryptocurrency for more than 12 months before disposing of it, you can qualify for the 50% capital gains tax discount.
- Offset with capital losses: Capital losses from cryptocurrency or other investments can be used to offset capital gains, reducing your overall tax liability.
- Personal use assets: Cryptocurrency used for personal purposes (under $10,000) may be exempt from capital gains tax. However, the ATO applies strict criteria to determine what qualifies as personal use.
- Tax deductions: Keep records of all expenses related to your cryptocurrency investments, as some may qualify as tax deductions.
Require Expert Help With Your Crypto Tax Calculations?
Calculating capital gains tax on your cryptocurrency can be tricky, but you don’t have to do it alone. At KPG Taxation, we simplify the process, ensuring you’re compliant and maximising your tax refunds.
Our team of experts provides correct advice for your unique crypto situation, making sure you pay the right amount of income tax while identifying potential tax deductions.
