Taxation & Tax Tips

cryptocurrency coins

Juston Jirwander

Juston Jirwander


In December 2021 I wrote a two-part article on Cryptocurrency.  There were two very different quotes from two brilliant minds and one of their comments may end up coming true if the recent Crypto Crash is any indication….

“In terms of Cryptocurrencies generally, I can say almost with certainty that they will come to a bad ending.” — Warren Buffett CNBC, January 2018

University of New South Wales data tells the story clearly. The sell-off in Bitcoin in Mid-June 22 saw the currency’s value fall to $17,592.78 USD. Bitcoin’s high in November 2021 reached Circa $65,000 USD, that’s a 73% fall. This was the first time since December 2020 that it had fallen below $20,000 USD. As per Bloomberg another Crypto, Ethereum, dipped a whopping 70% from its all-time high in November last year, prompting the world’s largest Cryptocurrency exchange, Coinbase, to sack a staggering 18% of its staff.

Proponents of Crypto currencies regarded the currency as relatively safe from volatility as it was based on the belief that it was a new form of currency that would continue to be supported by the members (people that own and mine) and the market, instead of being supported by a Bank or Government. What this crash confirms is that the currency cannot escape the volatility that affects all asset classes and is in fact more volatile and riskier than shares.

However as far as facts go I find the most interesting fact that the Crypto collapse is flooding the market with Rolex watches.

According to the report, the recent uncertainty surrounding Cryptocurrency has seen more owners unload their high-end timepieces.

Handful crypto coins

What Does This Crypto Crash Mean for You and What Opportunity Can You Make of It Now?

Right now you could sell your Crypto assets, recognise your Capital Loss and use the funds from the sale to buy a cheap Rolex watch.

Jokes aside, there is some logic to part of what I have suggested. Timing is a critical part of effectively reducing taxes.

If you hold Crypto assets that have a “paper loss” and Other Capital assets that have a “paper gain” and wish to realise the gain on these other assets then it is wise to realise your loss on the Crypto assets and use this loss to offset your gain.

Let’s look at an example:

Raj owns an investment property that she sells in June 22 which will create a Capital Gain for her of $100,000. She earns over $200,000 and holds private health insurance, so her Marginal Tax rate including Medicare is 47%. The Tax will be $47,000 if she does nothing else.

Along comes Raj’s Bishop Collins manager who informs Raj during her tax planning session in June that she purchased some Bitcoin for $80,000 AUD in 2021 and it is now worth $40,000 AUD. If she sells the Bitcoin before year-end and realises her Capital loss of $40,000, she can offset this loss against the gain on the property sale and save $18,800 in Tax.

If Raj still wishes to hold on to her Crypto, she could repurchase the Crypto asset on the same day. Effectively she is realising the Capital Loss and applying it cleverly to her Capital Gain. If she holds on to her Crypto asset and it goes up then she will only be liable to CGT when she disposes of the asset.

man lady keys

How to Avoid Tax on Cryptocurrency

Can you avoid tax on Cryptocurrency? When you buy Cryptocurrency in Australia, you are not taxed at the time of purchasing the asset, provided it is purchased with a fiat currency (Australian dollars, US dollars, British pounds, etc).

Tax is applicable only at the time of disposing of your Crypto and only if you have made a Capital Gain.

Crypto is also GST-free.

Other than when purchasing Crypto, broadly speaking, you won’t pay tax on Crypto in Australia:

  • While holding Crypto.
  • Acquiring it as a gift.
  • Hobby-level Crypto mining
  • Transferring your Crypto between your own wallets (however this can incur a transfer fee)
  • Purchasing personal use assets using Crypto under $10,000 (see more on what counts as a personal use asset below)
  • Donating Crypto to registered charities with Deductible Gift Recipient (DGR) status.

How to Minimise Tax on Cryptocurrency

You can guarantee that if you profit from Cryptocurrency, there will be some Tax to consider. As discussed previously, transacting in Cryptocurrency is not a secret transaction that is undetectable.

The Australian Taxation Office (ATO) Cryptocurrency data-matching program has been around since April 2019. Under the program, the ATO has collected data on Cryptocurrency transactions for the 2014-15 to 2019-20 financial years. This protocol will continue into the 2022-23 financial year.

Cryptocurrencies can be bought or sold on a digital currency exchange platform using traditional currency. In addition, some popular digital currencies or “stable coins”, like Bitcoin, can be purchased or sold for cash through special ATMs.

person tablet cryptocurrency graph

Tax Treatment of Cryptocurrencies

If you are involved in purchasing or trading Cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances.

Everybody involved in buying, selling or trading Cryptocurrency needs to keep records of their Cryptocurrency transactions.

If you’ve transacted with a foreign Cryptocurrency exchange, you may also have tax responsibilities in another country. This is an important thing to consider when you’re on the hunt for a reliable Crypto exchange. A few great ones are available in Australia, so you should research those over foreign exchanges.

When a Transaction is a Capital Gain

If you invest in Cryptocurrency simply hoping that it increases in value, any gain you make from the disposal is treated as a capital gain.

Capital Gains Tax (CGT) occurs when you dispose of your Cryptocurrency. The disposal can happen when:

  • You sell or gift Cryptocurrency
  • You trade or exchange Cryptocurrency (including the disposal of one Cryptocurrency for another Cryptocurrency)
  • You convert Cryptocurrency to traditional currency, such as Australian dollars, or
  • You obtain goods or services using Cryptocurrency.

Some or all the gain may be taxed if you make a capital gain on the disposal of Cryptocurrency.

Some capital gains or losses may be disregarded if they come from the disposal of a Cryptocurrency that is a personal use asset.

Crypto is a personal use asset if you hold it or use it mainly to purchase items for personal use or consumption.

If Cryptocurrency is acquired and used within a short period to purchase items for personal use or consumption, the Crypto is more likely to be a personal use asset.

The appropriate time for working out if an asset is a personal use asset is at the time of its disposal.

Except in rare situations, the Crypto will not be a personal use asset.

business man building

When a Transaction is an Ordinary Income

There are situations where a Cryptocurrency transaction or series of transactions can give rise to ordinary income if:

  • You went into the transaction intending to make a profit, and
  • The transaction is part of a business operation or commercial in character.

Relevant considerations for working out whether a transaction has such a character include:

  • The nature of the entity undertaking the transaction
  • The nature and scale of any other activities conducted by the entity
  • The amount of money involved in the trade and the scale of the profit sought or obtained
  • The nature, scale and complexity of the transaction
  • The amount of time which the transaction occurs
  • Whether the Cryptocurrency has had any other use, other than as an object of trade, for example, is it used to exchange or buy services only available on the blockchain?
  • Whether there is the necessary profit-making intention and business or commercial character of the transaction will depend on each case’s particular facts and circumstances.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain. This includes if you carry on a business of Cryptocurrency Miner or Trader making multiple disposals frequently.

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