How To Report Your Digital Assets For Optimal Tax Returns In Australia?

How to Report Your Digital Assets for optimal tax returns in Australia

Are you someone who loves to explore the digital world, investing in cryptocurrencies, or trading in digital assets?

If so, you might be wondering how to handle these assets come tax time. 

Fear not! KPG Taxation is here to help you out!

In this blog, we understand digital assets and guide you through the process of reporting them for your tax returns in Australia. 

Claiming A Deduction For Digital Product Expenses

As a business owner in Australia, you can claim tax deductions for the cost of digital products used in running your business. However, it is crucial to understand the different types of expenses and the appropriate deductions you can claim.

Operating vs. Capital Expenses - Key Difference

The key to claiming deductions for digital products lies in differentiating between operating expenses and capital expenses. 

Here’s a quick overview to simplify things:

Operating Expenses

These are the everyday costs associated with running your business. You can generally claim the full amount of these expenses in the year you incur them.

  • Examples: Internet service provider fees, software subscription fees (accounting, security, point-of-sale, etc.), website maintenance costs, cloud storage fees, and lease payments for digital equipment.

Capital Expenses

  • These are expenses associated with acquiring assets that have a useful life exceeding one year. You generally claim deductions for these assets over time, reflecting their depreciation (decline in value).

  • Examples: Computers, mobile devices, software licences with a lifespan exceeding one year, website development costs.

Claiming Your Deductions - A Step-by-Step Guide

Now that you understand the expense categories, let’s have a look at the steps for claiming your deductions:

  1. Apportion Business vs. Private Use: Not all digital product expenses qualify for full deductions. If you use a software program or device for both business and personal purposes, you must calculate the business portion for claiming.
  2. Factor in GST: If you’re GST-registered and claim the full GST credit for a digital product, exclude the GST amount from your deduction calculation.
  3. Identify the Expense Type: Classify your digital product expense as either operating or capital based on the criteria mentioned earlier.
  4. Calculating Your Deduction: Operating expenses can be deducted in full for the year they’re incurred. Capital expenses require calculating depreciation according to their effective life and relevant tax depreciation incentives.

Tax Depreciation Incentives

The Australian government offers several tax breaks to encourage businesses to invest in digital technologies. 

Here are some key incentives which you should be aware of:

Small Business Technology Investment Boost

The Small Business Technology Investment Boost is available to small business entities (with an aggregated annual turnover of less than $50 million) as part of the 2022-23 Budget Government initiative. This boost allows small businesses to deduct an additional 20% of the expenditure incurred for the purposes of business digital operations or digitising operations.

The boost applies to eligible expenditure incurred between 7:30 pm AEDT on 29 March 2022 and 30 June 2023, including expenses and depreciating assets such as portable payment devices, cyber security systems, and subscriptions to cloud-based services.

Temporary Full Expensing

This measure allows businesses with an aggregated annual turnover below specific thresholds to deduct the full cost of eligible assets immediately, rather than spreading it over their depreciation life. This incentive applies to some software licences and certain digital assets acquired before June 30, 2023.

Common Digital Product Expenses And Deductions

To further clarify, let’s have a look at some common digital product expenses and how you can claim deductions for them:

Digital Product Expense Type Deduction Calculation
Software Subscription Fees (e.g., accounting software) Operating Expense Claim the full subscription fee in the year it’s incurred.
Website Development Cost Capital Expense May be eligible for temporary full expensing or depreciated over several years.
Cloud Storage Service Fee Operating Expense Claim the monthly fee as an operating expense.
Computer Purchase Capital Expense May be eligible for temporary full expensing or depreciated over several years based on its effective life.

Records You Need To Keep For Future Reference

The Australian Taxation Office (ATO) requires you to maintain proper records for all claimed deductions.

Here’s what you should keep:

  • Receipts for digital product purchases
  • Bank statements reflecting transactions
  • Contracts or invoices for software subscriptions
  • Asset registers for capital expenses

Seeking Professional Help - How KPG Taxation Expert Accountant Can Help?

This blog did offer you valuable insights, but the actual complexities of tax deductions can be tough. Some instances where professional assistance from KPG Taxation can help are: 

  • Your business deals with complex digital assets and requires strategic tax planning.
  • You’re unsure about the eligibility of specific digital product expenses for deductions.
  • You need assistance calculating depreciation or applying tax depreciation incentives.

Well, these were to name a few but if you have any issues with digital assets taxation, you can reach out to our expert tax accountant team and they will strive to offer the best possible guidance. 

Consulting with KPG Taxation

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  • Income Tax : File your taxes & get the best claims & returns.
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  • Bookkeeping : Let us handle your record books and expense reports.
  • Business Advisory : From company set-up to payroll, we handle it all.