Cryptocurrencies will get a lot more attention this tax year after the ATO expressed concern that Australian taxpayers may not fully understand the taxation implications of buying, holding and selling this class of asset. In particular, the ATO believes people may have the misconception that cryptocurrency gains are tax free, or only taxable when the holdings are cashed back into Australian dollars.
Cryptocurrencies are considered an investment, similar to property or shares, and as such transactions will most likely have a tax or capital gains tax implication.
Whilst all situations are different, below are a few examples where you may need to include a capital gain or loss in your income tax return:
- Exchanging one cryptocurrency for another cryptocurrency,
- Trade, sell or gifting a cryptocurrency
- Converting cryptocurrency to a fiat currency, for example to Australian dollars (AUD), US dollars etc
- Exchanging cryptocurrency for goods.
If you only transfer cryptocurrency from one wallet to another wallet while maintaining ownership of the coin, it is not considered a disposal of cryptocurrency for tax purposes.
As with all tax matters, record keeping is essential to support any gains or losses.
The ATO has created a cryptocurrency factsheet with tips and information on how capital gains tax applies to cryptocurrency. The ASIC’s MoneySmart website also has tips on what to watch out for when making cryptocurrency investments.
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