Today’s widespread adoption of cryptocurrency has seen them move beyond mere investment assets to a store of value and a hedge against inflation and it’s more than ever common in Australia. From individual and institutional investors committing funds to crypto assets to governments of nations adopting them, there is a consensus that cryptocurrencies are the future.
However, the recent news around the crypto sphere is that many struggling nations are exploring ways to bolster their economies with cryptocurrencies and blockchain technology. This phenomenon has seen Central American country El Salvador become the first nation to officially adopt Bitcoin as a legal tender, with many nations touting the idea. On the other hand, it has also forced many countries to enact proper crypto regulations and adopt the best crypto tax approach.
Today, Australia is one of the most crypto-friendly nations, with its citizens heavily profiting from adopting crypto assets and blockchain technology. However, as you read on, you will understand everything you need to know about crypto tax in Australia and the best ways to avoid paying hefty crypto taxes legally.
Crypto tax in Australia: What is the role Of AUSTRAC and ATO?
Firstly, cryptocurrencies are legal in Australia, and their affairs are closely monitored and regulated by the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUTRAC is also responsible for licensing crypto exchanges and blockchain-related entities operating within the country and maintaining their financial service providers.
However, in terms of taxation, cryptos are taxed as properties, and investors must pay Capital Gains Tax on them. This also means that crypto investors must report capital gains and losses within their Income Tax Return to the Australian Taxation Office (ATO) and pay Income Tax on net profits.
However, despite being referred to as Capital Gains Tax, ATO does not subject crypto holders to any other form of taxes aside from income or gains tax. The interesting thing is that several platforms also encourage its users to follow the crypto tax rules in whatever country they reside. For example, Quantum pro 360 asks its users to look out for the tax rules, and policies in any country before investing. This is why the tax regulators have also set the percentage of Income tax on crypto as the same on regular personal income like salaries, with only earnings above $18,201 being taxable.
Also, since 2014, the ATO has been able to track crypto holders within the country, especially individuals who register or own an account with an Australian cryptocurrency designated service provider (DSP). This is because the tax watchdog has a data matching program with these crypto exchanges, giving them access to the KYC information of customers who register crypto accounts. This is also why crypto investors within Australia who fail to declare their tax returns can get letters notifying them of the dangers and penalties of evading crypto taxes.
Lastly, crypto investors who sell, trade, or earn in one financial year must always declare this to the ATO in their annual tax return. According to ATO, individuals who lose their crypto to theft may claim a capital loss upon providing substantial evidence to back their claims.
Crypto tax in Australia: Capital gains tax and income tax
According to ATO, Bitcoin, NFTs, tokens, and stablecoins are all classified as properties, and holders must pay Capital Gains Tax. However, ATO also believes that cryptos can sometimes exist as additional income, and the regulators sometimes subject them to Income Tax, depending on specific circumstances.
However, to break down the tax complexity, ATO classifies crypto users within Australia into two categories: crypto investor and crypto trader.
According to ATO, a crypto investor is an individual who buys crypto assets for their portfolio, relies on long-term returns, and trades casually. These individuals are not regular miners and only seek to profit from their investment long-term capital gains. Today, most Australian crypto users fall under this category, and ATO expects them to pay Capital Gains Tax on their earnings.