In late June 2022, the ATO updated its website on the tax implications of ‘Crypto’ transactions. It said that there are no special tax rules for this type of asset or transactions, but it is (for me, at least) interesting to know more about this digital form of currency, it’s use as an investment, and have some revision about the tax rules applicable to these transactions and holdings.

 

 

How to treat investments in crypto assets (also called crypto or cryptocurrency) for tax purposes in Australia.

How crypto assets work

Crypto assets are a digital representation of value that you can transfer, store, or trade electronically. This also includes non-fungible tokens (NFTs).

Crypto assets are a subset of digital assets that use cryptography to protect digital data and distributed ledger technology to record transactions. They may run on their own blockchain or use an existing platform such as Ethereum. A blockchain is a form of secure digital ledger used to store a record of crypto transactions.

Crypto generally operates independently of a central bank, authority, or government. However, transactions involving crypto assets are subject to the same tax rules as assets generally. There are no special tax rules for crypto assets. The tax treatment will depend on how you acquire, hold, and dispose of the asset.

For tax purposes, crypto assets are not a form of money.

For more information on the nature of crypto assets and the risks in investing in them, see ASIC’s Money Smart website.

[See ATO page for further information…]

 

Transactions – acquiring and disposing of crypto assets

Activities that amount to crypto asset transactions and how to treat your crypto asset investments for tax purposes.

      • Crypto asset transactions
        Most activities involving crypto assets amount to a transaction, which gives rise to a CGT event.
      • Non-fungible tokens
        How tax applies to transactions involving non-fungible tokens, another type of crypto asset.

[See ATO page for further information…]

 

When capital gains tax applies

The most common use of crypto is as an investment, in which case the crypto asset is a capital gains tax (CGT) asset.

If you acquire a crypto asset as an investment, transactions such as disposal or exchange are a CGT event and you may make a:

      • capital gain
      • capital loss, which can reduce capital gains you make.

You can’t deduct a net capital loss from your other income.

You may be able to reduce capital gains using the CGT discount if you hold your crypto asset for at least 12 months.

If you hold the crypto asset as an investment, it will not be exempt from CGT as a personal use asset.

To work out if you made a capital gain or capital loss from each CGT event, keep records of your transactions.

[See ATO page for further information…]

 

  • Crypto chain splits
    How to treat a new crypto asset you receive as a result of a chain split.
Chain splits

A chain split occurs when there are two or more competing versions of a blockchain. These competing versions share the same history up to the point where their core rules diverge.

As an investor, if you receive a new crypto asset as the result of a chain split (such as Bitcoin Cash being received by Bitcoin holders), the value of the new crypto asset is not treated as either:

      • ordinary income
      • a capital gain at the time you receive it.

However, you will need to work out your capital gain or capital loss when you dispose of the new crypto asset you receive as a result of a chain split. The cost base of a crypto asset you receive as a result of a chain split is zero ($0).

You may be entitled to the CGT discount if you hold the new crypto asset for 12 months or more before disposing of it.

If you acquire the new crypto asset in carrying on a business, it may be treated differently for tax purposes.

[See ATO page for further information…]

 

What is a personal use asset?

A crypto asset is a personal use asset if you keep or use it mainly for personal use. The most common situation of personal use of crypto assets is to buy items for personal use or consumption.

This page relates only to traditional cryptocurrencies (such as Bitcoin). See Non-fungible tokens for information on their use as personal use assets.

The relevant time for determining if a crypto asset is a personal use asset is when you dispose of it:

      • A crypto asset you acquire and use in a short period of time to buy items for personal use or consumption is more likely to be a personal use asset.
      • A crypto asset you acquire and hold for some time before you use it, or only use a small proportion of it, to buy items for personal use or consumption is less likely to be a personal use asset.

During a period of ownership, the way you keep or use a crypto asset may change. For example, you may originally acquire a crypto asset to buy items for personal use and enjoyment, but ultimately keep it as an investment or use it in carrying on a business. It is the main use, that you determine when you dispose of a crypto asset, that dictates whether a crypto asset is a personal use asset.

[See ATO page for further information…]

 

  • Keeping crypto records
    What records you need to keep of crypto asset transactions and how long to keep them.
Crypto asset records you should keep

You must keep records of each of your crypto assets and every transaction, to work out whether you have a made a capital gain or loss. For your crypto assets, you should keep records of:

      • receipts when you buy or transfer crypto assets
      • exchange records
      • records of agent, accountant and legal costs
      • digital wallet records and keys
      • software costs that relate to managing your tax affairs.

You need to keep details for each crypto asset as they are separate CGT assets. Keeping good records is essential for meeting your tax obligations.

[See ATO page for further information…]

 

 

Last modified: 29 Jun 2022

 

 

[Tax Month – July 2022 – Previous Month, 13.7.22]

 

Category: Tax Month - July 2022

Author: John Morgan

John Morgan is a tax specialist lawyer of more than three decades experience now practicing at the Victorian Bar - w: www.FJMtax.com e: f.john.morgan@vicbar.com.au