Bitcoin and the World of Cryptocurrencies: The Tax Essentials

By Andrew Hayes, Director, Westlawn Business Services
30 April 2018

There are reasons that Bitcoin is the one cryptocurrency on the lips and in the virtual wallets of most investors. It was the first cryptocurrency and its success and popularity spurred the creation of 1,100 more, including Ethereum, Ripple and Zcash, which are invested in for both personal use and for profit. While the buzz and efficiency of Bitcoin keeps it at the top, tax laws are still complex, and there are many unknowns for the average investor to ensure that they comply with ATO tax rules and secure their investments.

What Do You Need To Know?

The ATO regards Bitcoin as property. In the eyes of the tax law, cryptocurrencies are not regarded as money — neither Australian nor foreign currency. As property, it is likely to be treated as an asset for capital gains tax (CGT) purposes.

The legal tax requirements of investing in and using Bitcoin and other cryptocurrenies are still being negotiated and finalised, and ATO officials are regularly releasing updates on regulations that are important for investors to keep informed about.

What does tax have to do with it?

Personal Use:

  • Personal use of cryptocurrency is not subject to income tax or GST in Australia.
  • Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption.
  • Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.

Capital Gains:

  • If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed.
  • If the disposal of your Bitcoin currency is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.
  • Regulations are still being updated, so it’s important to keep in touch with the ATO and professional advisors.

Investments

If you acquire Bitcoin as an investment for profit or in the course of carrying on a business, be aware of tax rules:

  • you may need to pay tax on any capital gain you make on disposal of the cryptocurrency
  • you will not be entitled to the personal use asset exemption
  • if you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount

How to be Secure

  • Track your spending and investments with your cryptocurrency — most importantly, keep a log of the date and place of transaction. These may be requested by the ATO, so helpful when tax time comes.
  • Personal and business investors, keep a track of the Australian value of the cryptocurrency, as it will change and the ATO may track these over the tax year.
  • Stay in touch with the ATO’s updates on cryptocurrencies.
  • Westlawn professionals can guide investors through the ATO’s complex laws and requirements and ensure the most security at tax time.

For advice speak with a Westlawn Business Services Accountant by phoning 02 6642 0444 or emailing wbs@westlawn.com.au

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