Knowing your Tax Liabilities with Cryptocurrency (Bitcoin and others)

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In the news, the ABC reported that the ATO likely on alert for cryptocurrency claims during tax time.

Be aware that scammers are targeting Australian’s with regard to tax debts, demanding bitcoin payments. Taxpayers Tricked by Bitcoin ATO Scam

 

This article – How Not to Do Your Crypto Tax in Australia – is a fantastic guide to doing your tax return with regards to cryptocurrency, including profits AND losses.

 

ATO Documentation

All of the following information is taken or derived from the ATO’s article at https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia—specifically-bitcoin/

Record Keeping

You need to keep the following records for bitcoin transactions:

  • the date of the transactions
  • the amount in Australian dollars (which can be taken from a reputable online exchange)
  • what the transaction was for
  • who the other party was (even if it’s just their bitcoin address).

Capital Gains Activities

  • Bitcoin held by a taxpayer carrying on a bitcoin exchange will be considered to be trading stock. You are required to bring to account any bitcoin on hand at the end of each income year.

Excluded Activities

  • Purchasing goods and services with Bitcoin for personal consumption under $10,000

7 Tips to Ensure you Correctly Include Cryptocurrency on your Tax Return

1. Work out your Tax Liability

Knowing your position can inform your strategy for the rest of the tax year. For example, if you have made a profit and are planning to soon sell some coins that you will make losses on, if you sell these coins before 30 June the loss will offset the gain in the current tax year. If you wait until July to sell, the loss has to be offset against any profits in the next tax year.

2. Plan your tax payment

If you have sold crypto and will make a profit, come up with a plan for how you will pay the tax and know when the tax is due and what the associated risks are. If you lodge your tax return through a tax agent, you may be able to wait until May 2019 to lodge your return. In terms of managing risk, you might plan to pay your tax through the sale of Bitcoin in September, but if the Bitcoin price drops, you may not have the funds to pay your tax bill. Planning early and mitigating risks of not being able to pay are important.

3. Understand taxable events

Understand that crypto to crypto trades are taxable events. The ATO has specifically stated this on the ATO website. The ATO views cryptocurrencies as assets and like the sale of any asset, such as a listed share on the stock exchange, selling a crypto is a taxable event even if it is sold for another crypto. You may be in a position where you have made a profit on crypto to crypto trades and then have to sell coins to pay tax. If you do this, the sale of these coins will then be taxable events too(!).

4. Know your exchange position

Understand that holding crypto on a foreign exchange doesn’t stop the ATO applying tax to trades on these exchanges. Australian residents for tax purposes (which broadly means anyone who has a permanent home in Australia. Seek advice if you have lived overseas for part of the tax year) are taxed on their world-wide income. All crypto trades will apply.

5. Figure out your buying status

Know whether you are a ‘trader’ and in the business of trading crypto or an ‘investor’ and thus not in the business of trading crypto, as this may affect tax on your gains. Traders will be taxed on all income, whereas investors may be able to access the capital gains tax discount for holding a coin for more than twelve months.

6. Ensure records are up to date

Ensure your record keeping is up to date and consider using software such as cointracking.info to track your transactions. The ATO require you to be able to substantiate transactions so you will need to keep or be able to readily access details of all transactions and provide these to the ATO if required.

7. Check price input data

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