Cryptocurrency investors often associate tax consequences with converting crypto back into Australian dollars. However, the CGT rules can apply to a much broader range of transactions. The ATO continues to emphasise that crypto assets held as investments are generally CGT assets, meaning the same broad capital gains tax principles that apply to shares and investment property may also apply to digital assets.
For most individual investors, crypto is held as an investment rather than for personal use. Where crypto is acquired and held as an investment, transactions such as the following may trigger a CGT event:
selling crypto;
exchanging one crypto asset for another;
gifting crypto; or
otherwise disposing of a crypto asset.
A common misconception is that tax only arises when crypto is converted into cash. In practice, a crypto-to-crypto swap can also trigger CGT consequences. Clients often focus on purchases and sales, but exchanges between different crypto assets can be just as important from a tax perspective.
Some clients are aware of the personal-use asset exemption and assume it applies broadly to crypto, but the exemption is much narrower than many investors realise.
Crypto that is acquired and held primarily as an investment will generally not qualify as a personal-use asset. The exemption’s generally relevant only where crypto is mainly kept or used to purchase items for personal use and the relevant conditions are satisfied. As a result, many investors who assume their holdings are exempt may find that CGT still applies.
A capital gain generally arises where the capital proceeds from a disposal exceed the asset’s cost base. Because crypto assets are often traded in foreign currencies or valued using overseas exchanges, clients need to keep sufficient information to establish Australian-dollar values at the time of acquisition and disposal. Gains and losses must ultimately be calculated in Australian dollars, which means accurate records are essential.
The potential availability of the CGT discount is a point that’s frequently overlooked. Where an individual has held a crypto asset for at least 12 months before the relevant CGT event, the 50% CGT discount may be available, subject to the ordinary CGT discount rules. For longer-term investors, this can make a significant difference to the eventual tax outcome.
Another common misunderstanding relates to losses. A net capital loss generally can’t be deducted against salary, wages or other ordinary income. Instead, capital losses are generally applied against capital gains. Unused losses may generally be carried forward to future years where the relevant conditions are satisfied. Clients who have experienced significant crypto losses sometimes incorrectly assume those losses will automatically reduce tax payable on employment income.
The ATO places significant emphasis on record-keeping for crypto transactions. Poor records can make it difficult to calculate gains and losses accurately, particularly where clients have traded frequently or used multiple platforms.
Useful records include:
transaction dates;
The ATO’s crypto asset data-matching program obtains information from designated service providers and compares those records against information reported by taxpayers. The practical message for clients is straightforward: the ATO is increasingly able to identify crypto transactions and compare reported activity with transaction data held by service providers. That doesn’t mean every discrepancy indicates a compliance issue, but it does reinforce the importance of accurate record-keeping and reporting.
People may still view crypto differently from shares and other investments. From a tax perspective, however, the CGT rules often operate in a similar way.
This article provides a useful opportunity to remind clients that crypto transactions shouldn’t be left until tax-return time. Maintaining good records throughout the year can make reporting significantly easier and may reduce the risk of errors, missed concessions or unexpected tax outcomes.