Cryptocurrency - What are the tax implications?

Cryptocurrency and tax implications in Australia can be complicated. In determining taxable events for cryptocurrency, the first step is to determine whether you are a trader or investor. This will determine the tax implications of each CGT event.

Are you an investor or a trader?

• Investor

  • Passively buys and sells cryptocurrency on a personal basis with the goal of gradually increasing their wealth over an extended period of time.

  • Investors are subject to CGT.

• Trader

  • Individual who actively engages in buying and selling cryptocurrency to generate wealth and operates from a business setup.

  • Traders’ profit is taxed as ordinary income.

When do CGT events occur?

• Selling cryptocurrencies and converting cryptocurrency to fiat currency (e.g. AUD)

  Involves the disposal of cryptocurrencies, therefore, is liable for CGT. You must calculate the difference between the buying price and the selling price.

• Gifting cryptocurrencies

  • Gifting cryptocurrency is a disposal; therefore, you must calculate the CGT based on the AUD cost price and AUD value at the time of gifting the cryptocurrency.

  • Receiving cryptocurrency as a gift does not impose a CGT event. However, the gift will be liable for CGT when it is disposed. This will be calculated using the AUD value at the time it was gifted and the AUD sale price.

• Trading or exchanging cryptocurrencies

  Trading and exchanging cryptocurrencies are a disposal and are liable for CGT. This is calculated using the AUD value of the purchase and the AUD of the exchange/sale of the other cryptocurrency.

• Using cryptocurrencies to obtain goods & services

  Considered to be a disposal of cryptocurrencies, therefore, is liable for CGT. You must calculate the difference between the buying price and the selling price.

Other CGT events

• Non-fungible Tokens (NFTs)

  The tax treatment of NFTs follows the same principles as cryptocurrency. Therefore, the following will result in a CGT event:

  • Selling NFTs in exchange for cryptocurrency

  • Exchanging one NFT for another NFT or fungible cryptocurrency

  • Gifting an NFT as a gift

• Forks or Chain Splits

  Forked coins and chain splits will have a cost base of zero. A CGT event will occur when they are disposed of.

• Mining

  As a hobby

  • A CGT event occurs when the cryptocurrency is disposed and will have a cost base of zero (as these coins were not purchased)

  As a business

  • The AUD value of cryptocurrency as you obtain it is classified as taxable income.

• Airdrops

  • A coin or token is sent to a variety of wallet addresses, free of charge

  • Airdrops are considered income and therefore are subject to income tax. However, when they are sold they are liable for CGT.

CGT events must be included in your tax return at the end of each financial year. Contact your accountant to find out how we can assist you with calculating your cryptocurrency CGT.