How much do you owe in crypto taxes? Does myTax have you confused about crypto capital gains?
Crypto assets may house incredibly complex algorithms under the hood, but their tax treatment doesn’t require a Ph.D. in mathematics. Most crypto transactions have pretty straightforward tax rules, while the right tools can help you organize everything in just a few minutes. Armed with the proper knowledge and tools, you don’t have to stress this tax season.
In this guide, you’ll learn how crypto taxes work in Australia and how to ensure that you accurately report your transactions.
Crypto Tax Guidance
The Australian Tax Office (ATO) provides crypto tax guidelines to help taxpayers understand their obligations.
The ATO’s tax treatment depends on how you use or transact with crypto assets. For example, if you’re an investor, you typically owe capital gains tax on any increase in value (profit) and ordinary income tax on any rewards or interest income. However, crypto assets may also fall under business or personal use criteria that change tax treatment.
As for determining the exact amount you’ll owe, Australia has a progressive income tax scheme with marginal tax rates ranging from 0% to 45% plus the Medicare levy, depending on your level of taxable income. That said, non-residents have different tax rates, and special exceptions may exist for other groups.
Here are the 2023-24 marginal tax brackets for residents:
The capital gains tax (CGT) is equivalent to your marginal tax rate if you’ve held the asset for less than one year. If you’ve owned it for 12 months or longer, you’re eligible for a 50% discount for individuals and trusts or a 33.33% discount for complying super funds and certain life insurance companies – a significant saving!
When computing capital gains, the ATO permits any crypto accounting method as long as you can identify each tax lot specifically. For those in the “trader” classification or who conduct crypto transactions as part of a business, you can only use the HIFO (highest in first out) or average cost basis accounting methods.
Taxable Transactions
Much uncertainty surrounding crypto taxes stems from determining what’s taxable. For example, wrapping a token to create a new token doesn’t necessarily provide you with any benefit, but do you have to pay CGT on the token you’re wrapping? Or do you owe CGT when you spend Bitcoin on a coffee or at a retail shop?
The following transactions are generally taxable:
- Selling crypto for AUD or another fiat currency.
- Swapping crypto for crypto, including NFTs or stablecoins.
- Spending crypto on goods and services (if it’s not personal use).
- Gifting crypto to others.
But some transactions are less obvious:
- Personal Use – You don’t have to pay tax on very short-term crypto holdings of $10,000 or less if they’re used to make a single, one-time purchase (e.g., a coffee or retail item).
- Airdrops and Staking – You’ll treat airdrops and staking rewards as ordinary income, subject to your marginal tax rate, similar to interest and other investment income.
- Hard Forks – You don’t owe ordinary income tax or CGT when you receive new cryptocurrency from a hard fork. But you may owe CGT if it appreciates after you receive it.
- DeFi Transactions – Most DeFi activities are likely taxable as capital gains or ordinary income. However, some areas, like token rebates, remain a gray matter without clear guidance.
While these rules may seem straightforward, they can lead to unexpected tax implications. For instance, suppose a crypto asset you own experiences a hard fork, and you decide to sell after a few months. While you may have held the original investment for a long time, the sale would be short-term (non-discounted) because of the fork!
Calculating & Reporting Taxes
The ATO requires you to maintain detailed records of crypto transactions for five years after you’ve prepared or obtained the records or completed the transactions the records relate to – whatever is later.
Fortunately, ZenLedger and other tools can help aggregate transactions across wallets and exchanges, making it easier to stay organized. In particular, ZenLedger’s Grand Unified Accounting capabilities make it easy to consolidate every transaction into one spreadsheet you can use for recordkeeping or tax preparation.
After aggregating transactions, you must compute your capital gain or loss by matching purchases with sales. The difference between the cost basis and the sale price reflects the profit on which you owe the capital gains tax. Depending on the holding period, you may qualify for the 50% discount on the CGT amount.
If you’re filing through the ATO’s myTax platform online, you can input transactions one-by-one to compute your capital gain or upload a CSV file containing your transactions. Fortunately, the file you use for recordkeeping can help automatically log transactions in myTax without inputting each one by hand.
ATO Fines & Penalties
The ATO may impose penalties if you fail to report crypto transactions or pay taxes on time. In particular, the ATO assesses one penalty point for every 28 days a return is overdue, up to a maximum of five penalty units. In addition, you can incur interest charges on any unpaid tax, which periodically adjusts based on market rates.
If you fail to “take reasonable care” in reporting your taxes, the ATO could also impose a penalty for making a false or misleading statement. These penalties range from 25% to 75% of the shortfall amount, depending on whether the inaccurate reporting was due to recklessness or intentional disregard of tax laws.
Other Tax Quirks to Note
Stolen Cryptocurrencies
The ATO allows you to deduct any stolen crypto as a loss, although the agency requires careful documentation to substantiate these claims.
Misleading Statements
The ATO may impose penalty units for making false or misleading statements even if you don’t have a tax shortfall. These can be up to 60 penalty units for intentionally disregarding the law.
The Bottom Line
Australia has a relatively straightforward crypto tax scheme compared to other jurisdictions worldwide. For most people, you can minimize your tax bill by holding crypto assets for over 12 months and leveraging tools like ZenLedger to ensure you accurately file each year.
Get started with ZenLedger for free!
The above is for general info purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
