The explosive growth of Bitcoin and other crypto-currencies has been one of the big financial stories of the last few years. Less well-known, however, are the potential tax impacts of getting into this new form of digital asset.

Investing in cryptocurrency

If you purchase Bitcoin as an investment, any gains you make will potentially be subject to capital gains tax (CGT) since Bitcoin is regarded as an asset for tax purposes (like shares or real estate). The gain is calculated as the difference between the cost of the asset and the proceeds and if you own the Bitcoin for more than 12 months, you should be entitled to the 50% CGT discount, which effectively halves the tax you pay on your gain.

Similarly, if you lose money on your investment, you’ll make a capital loss which you can offset against other capital gains.

If the original cost of the Bitcoin you acquired was less than $10,000 and you acquired it with a view to using it to purchase goods or services for your own consumption (such as food, entertainment or other retail goods), any resulting gain from the disposal of the Bitcoin will be CGT free, no matter how big the ultimate gain. If you intend to rely on this exemption, make sure you can demonstrate to the ATO that you genuinely intended use the Bitcoin for personal consumption.

Trading in cryptocurrency

If you intend to trade in Bitcoin, any profits you make will be assessable income, so you’ll pay income tax on your net profits (the difference between the profits from your trading less any expenses incurred). The difference between a trader and an investor is that a trader normally buys and sells assets frequently with a view to short-terms profits, whilst an investor buys and holds an asset with a view to longer term growth.

Keep records

Remember to keep records of all your Bitcoin purchases and sales (converted into Australian dollars) and any associated expenses, like fees and commissions.

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We are experts in Cryptocurrency & tax obligations

Need help understanding your tax obligations? Our professionals are experts on cryptocurrency & tax obligations. Find an office near you and book an appointment online.

Book now