If you're dabbling in crypto, whether you're a seasoned trader or just getting started, understanding your tax obligations is crucial. The Australian Taxation Office (ATO) has made it clear that cryptocurrency is an asset subject to tax, just like stocks or property.
The ATO views crypto assets as property for tax purposes, not as currency. This means that every time you sell, trade, or use cryptocurrency, it could trigger a taxable event. It's important to stay on top of these obligations to avoid any surprises come tax time.
Crypto Tax Basics
When it comes to crypto, you'll typically encounter two types of taxes: Capital Gains Tax (CGT) and Income Tax.
Let's break these down:
Capital Gains Tax (CGT): CGT applies when you dispose of your crypto assets. Some common activities that can trigger CGT include:
- Selling crypto for fiat currency
- Swapping one crypto for another
- Using crypto to purchase goods or services
- Depositing crypto into a smart contract
For example, if you bought 1 Bitcoin for $10,000 and later sold it for $15,000, you've made a capital gain of $5,000. This $5,000 would be added to your annual assessable income and taxed at your marginal tax rate.
The good news? If you hold your crypto for over 12 months, you may be eligible for a 50% CGT discount. Using our previous example, if you held that Bitcoin for over a year before selling, only $2,500 of the gain would be added to your assessable income.
Income Tax: Income tax applies to crypto you receive as income. This could include:
- Mining rewards
- Staking rewards
- Airdrops
- Interest from crypto lending platforms
For instance, if you earned $1,000 worth of cryptocurrency through staking rewards, this $1,000 would be treated as ordinary income and taxed at your marginal tax rate.
DeFi Taxation: Latest ATO Guidance
The world of Decentralised Finance (DeFi) has exploded in popularity, offering innovative ways to earn yield on your crypto assets. However, it's crucial to understand the tax implications of these activities, especially in light of the ATO's latest guidance.
In November 2023, the ATO released new web guidance specifically addressing DeFi transactions. This guidance clarifies some areas but also highlights the complexity of DeFi taxation. Let's break down some key points:
Lending and Borrowing in DeFi
The ATO now considers that lending crypto assets often results in CGT events due to changes in beneficial ownership.
Liquidity Pools
Both depositing into and withdrawing from liquidity pools trigger CGT events. For example:
DeFi Interest and Rewards
Rewards from DeFi platforms are treated as assessable income, not capital gains. For instance:
Wrapped Tokens
Both wrapping and unwrapping tokens are considered CGT events. For example:
Key Takeaways:
- Many DeFi activities trigger CGT events, even when you might not expect them.
- DeFi rewards are generally treated as income, not capital gains.
- It's crucial to keep detailed records of all DeFi transactions, including dates and values.
- The tax implications of DeFi can be complex, and seeking professional advice may be necessary.
Remember, while DeFi offers exciting opportunities, it's important to understand and prepare for the tax implications. Tools like Crypto Tax Calculator can help you track these complex transactions and ensure you're meeting your tax obligations.
Tips to Make Tax Time Easier
1. Keep Good Records: Maintain detailed records of all your crypto transactions, including dates, amounts, and the AUD value at the time of each transaction.
2. Use Crypto Tax Software: Tools like Crypto Tax Calculator can automatically track your transactions and calculate your tax obligations, saving you hours of manual work.
3. Regularly Sync Your Accounts and Reconcile: Don't wait until the end of the financial year. Regularly update your records to avoid a last-minute scramble.
4. Speak to a Crypto Specialist Accountant if Needed: If your situation is complex, it might be worth consulting with an accountant specialising in cryptocurrency taxation.
Simplifying Crypto Tax Reporting Crypto Tax Calculator
We're excited to announce that Block Earner has partnered with Crypto Tax Calculator to make your crypto tax reporting easier than ever!
Benefits for Block Earner Users:
- Seamless integration: Your Block Earner transaction CSVs can be dragged and dropped straight into CTC to import your transactions.
- Accurate calculations: Ensure all your Block Earner activities will be automatically categorised for tax purposes.
- Time-saving: No more manual data entry or complex spreadsheets.
How to Get Started:
- Sign up for a Crypto Tax Calculator account (Block Earner users get a special discount! Use BLOCK30 for 30% off your first year)*
- Connect your Block Earner account
- Import your other crypto transactions
- Review your transactions for accuracy and tax saving opportunities
- Generate your tax report that can be filed directly with the ATO or shared with your accountant
By staying on top of your crypto tax obligations and leveraging tools like Crypto Tax Calculator, you can focus on what really matters - growing your crypto portfolio With the right tools and knowledge, crypto tax doesn’t need to be a nightmare.
*First time users only
