The impact on your return on income tax will be taken into account if you have traded cryptocurrencies in the past financial year. In case you make a profit selling cryptocurrencies, in your annual return, you have to mention this. The cryptocurrency traders are typically targeted as per the ATO. And one needs to understand the tax involved with trading cryptocurrencies.
If you want to make a cryptocurrency trading and stay in Australia, here are a few things that you have to follow so that the tax department doesn’t come charging. But before that, let’s look into how cryptocurrencies are being taxed in Australia. After this, we can advance with other related topics on cryptocurrency and taxes.
Taxing of Cryptocurrency in Australia
The benefits made from trading cryptocurrencies are classified in AUD amounts. This is done when one exchanges crypto for services, products, other cryptos, and national currency.
For instance, when you purchase or acquire one bitcoin when it is priced at $5,000, after which you spend or sell it is valued at $13,000, it will subject you to an $8,000 obligation on tax when you spend or sell the BTC.
The gains and losses in cryptocurrencies are subject to tax, and the other related elements will distribute the tax process in two different groups.
1.Professional/Business- Income Tax
The profits that you make from the cryptocurrencies will be treated as a business or personal income. This is the reason it will fall under income taxes that are relevant to your trade. As the cryptocurrency, when acquired, was done as a business deed. These types of acts might obligate-
- Businesses with cryptocurrency-related transactions
- Mining cryptocurrency commercially
- Businesses related to cryptocurrency operations
- Trading crypto professionally
The gap between business and personal projects can correspond in some areas. For instance, when a simple cryptocurrency mining lab does evolve into a fully-fledged commercial project?
In times like these, the processes that were carried out were their business intended, a planned market or any financial return is expected. The ATO will speculate on the other related matter. The cryptocurrencies that will come under this classification will incur business or personal tax on income.
2.Personal- Investment Tax
The cryptocurrency trading that you are carrying our might not fall under the above category. The gains and losses that you make will be treated as personal investment profit or loss. This, on the other hand, will fall under taxes for capital gains.
The personal investment tax will be levied on instances such as these-
- Hubristically mining cryptocurrencies
- Trading cryptocurrency rarely
- Buying cryptocurrency for personal use
The gains and losses of cryptocurrencies that fall under this rule will incur capital gains. On the other hand, a few exceptions of this type lurk around, let’s explore those points below.
Tax on Capital Gains Apply only when
In situations like when you dispose of any digital currency, for example-
- Converting the cryptocurrencies to the national currency (for example- Australian dollars)
- Using crypto for purchasing services or goods
- Exchange or trading cryptocurrencies for fiat currency or another crypto
- Gifting or selling of cryptocurrencies
While you dispose of cryptocurrencies, you have to pay tax on the amount that you dispose of or the gain that you have made when you make a captain gain. For instance, buying a cryptocurrency treating it as an investment, then exchanging or selling it at higher values will result in capital gains, this is a tax you will need to pay.
On the contrary, if you manage to hold on to your digital currency over one year before trading or selling it, you might end up getting a 50% discount on taxes on capital gains. Even if your cryptocurrency value rises, you will not be subjected to taxation from capital gains and loss unless you dispose of your digital money.
Another matter in hand is that one you dispose of the cryptocurrency and the proceeds are less from what you bought them for in the beginning, you will go through a capital loss. The capital gains can be manipulated with capital losses from the same financial year or a coming year.