Digital currency under Australian taxation law is a relatively new concept, and as it gains momentum, it is vital for cryptocurrency traders to keep up with regulations set out by the Australian Taxation Office (ATO).
The situation in Australia
Since the ATO released the Convenient Guidance Paper, the position stands that bitcoin and most cryptocurrencies are a form of property and are taxable.
The ATO recently commented on the taxable nature of bitcoin, saying: “Any financial gains made from the selling of bitcoin will generally be subject to capital gains tax (CGT) and must be reported to the ATO”.
It should be noted that while the Convenient Guidance Paper specifically refers to bitcoin, it is assumed that the rules set out apply to most cryptocurrencies.
In short, the ATO believes that bitcoin, Ethereum and all other cryptocurrencies are a “form of property” and are thus taxable.
According to the ATO, the office will be actively seeking out individuals that attempt to avoid paying tax on crypto profits and has set up a special task force to investigate such matters.
How the ATO plans to identify these individuals, however, is unclear, especially with the introduction of private coins that are often used by our clients for complex and information-sensitive matters, with no intention of avoiding tax or committing an offence.
The ATO currently has access to a range of powers that allow it to investigate “unexplained wealth and conspicuous consumption that may arise through profits derived from cryptocurrency investment”. However, there has been no mention of the ATO using platforms such as Chainalysis to identify crypto tax evaders in Australia, as is currently implemented by the US Internal Revenue Service.
Personal cryptocurrency tax in Australia
Personal use of digital currency is not subject to GST or income tax in Australia. The definition of “personal use” is limited to paying for goods or services using digital currency.
This won’t allow you to avoid paying stamp duty by buying a luxury property with digital currency, however; “personal use” transactions are capped at $10,000.
With the price of digital currency increasing, you are likely to be hit with a 50 per cent capital gains tax discount, but the ATO doesn’t appear to have decided yet on what counts as “investing”.
According to the ATO website: “If you are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale or allowed any deductions for any losses made. However, if your transactions amount to a profit-making undertaking or plan, then the profits on disposal of the bitcoin will be assessable income.”
Cryptocurrency tax for businesses in Australia
Using digital currency for business use transactions and accepting digital currency at your business attract the same barter and countertrade transaction tax process. This means that if you choose to accept payment in digital currency at your business, it’s likely that you’ll be charged GST on the amount received.
In relation to transacting with digital currency, the ATO states: “Transacting with bitcoin is akin to a barter arrangement, with similar tax consequences. Our view is that bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply of goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains (CGT) purposes.”
As a result, bitcoin as an asset is subject to capital gains tax and not the goods and service tax, and you will need to keep the following for records for bitcoin transactions:
• The date of the transaction
• The amount in AUD (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)
Digital currency and business transactions
Digital currency and cryptocurrencies for business transactions need to be recorded in AUD as part of the business’ normal income.
When you are operating a business and you purchase business-use items (including trading stock) using digital currency, you are entitled to a deduction based on the arm’s length value of the items purchased.
If a business accepts payment in digital currency, that business may be charged GST on the cryptocurrency received. Normal rules of claiming input tax credits are applicable for the GST charged on cryptocurrency received if the supply of the goods and services was a taxable supply.
A business can pay employees in digital currency as a fringe benefit subject to the Fringe Benefits Tax Assessment Act 1986 (Cth). In the absence of an agreement, the paid wages will be subject to normal pay as you go (PAYG) requirements.
Mining digital currency is a business activity and any income derived must be included in the assessable income. Normal expenses claimable deductions are allowed.
While at this point in time there is somewhat of a grey area in Australian taxation rules and cryptocurrencies, it is a good idea for all individuals and businesses to keep written records of their transactions and received payments.
Janya Eighani is a principal solicitor at Lehman Walsh Lawyers.