So, you invested in some crypto this last financial year. That’s all well and good (I mean, depending on how those investments went). But what do you do come tax time when it comes to crypto?
That’s the question a whole lot of Aussies have been asking over the past couple of years, and seeing as we have tax tips on the brain right now, we thought we’d seek out some tax advice for all you cryptocurrency enthusiasts.
Mena Theodorou and Simon Ho, co-founders of Australian cryptocurrency exchange Coinstash, spoke to us over email and shared their thoughts on crypto and tax in 2022.
Table of Contents
The ATO is paying close attention
As was the case last year, this tax season will likely have a lot of interest placed on crypto and the declaration of any earnings in that space.
Theodorou explained that you should “Expect the ATO to dedicate more resources to investigating your tax returns if you have bought or sold any crypto assets during the year. We know that information is being shared across Government departments, at both the State and Federal levels. So, it’s important that you make sure you work with your accountants to declare everything accurately.”
If you’re unsure about anything, speak with an accountant – ideally one who has experience with crypto – and be thorough in sourcing your transaction history when pulling together your tax data.
On that point, the ATO recently released a statement sharing that this tax season, it is paying particularly close attention to taxpayers considering ‘asset wash sales’ in an effort to reduce expected gains. You can learn more about that here.
Crypto rules you should keep in mind this tax season
The rules differ depending on how you invest in crypto, what kind of earnings you’ve made and what you’ve done with said earnings.
Theodorou and Ho shared the key rules that you must consider come tax time.
Personal use asset exemption:
“For the crypto hobbyist, there is a $10,000 ‘Personal Use Asset tax exemption,” Theodorou said.
He explained that if a hobbyist purchased under $10,000 worth of crypto that has been used for personal use or purchasing goods, then no tax is payable.
“A really important eligibility factor to keep in mind is that the crypto that you purchased must not have been for investment purposes, as part of a profit-making scheme, or in the course of business activities. Make sure you work with your accountant to determine if you meet the eligibility criteria,” Theodorou stressed.
How long you have held onto your crypto before using it for personal use is also of note here. And if you have exchanged your cryptocurrency into Australian dollars (or a different cryptocurrency) to make purchases, this will not be considered a personal use asset. Keep reading here.
Are you a trader, investor or hobbyist?
Your classification as either a ‘trader’, ‘investor’, or ‘hobbyist’ has a huge impact on your “crypto bottom line”, Theodorou shared.
The distinctions between the three types [of classification] are often blurred and it’s crucial to seek advice on which category you fall under because it can have significant consequences.
As a general guide (though you should absolutely speak with an accountant to confirm where you land), Theodorou said that:
“A crypto ‘investor’ is likely dealing with the capital gains tax (CGT) rules when they buy [or] sell their crypto assets. As such, the investor could be eligible for the 50% CGT discount.
“On the other hand, a crypto trader is likely to be buying and selling quite frequently such that they’re conducting a business. While they might not be entitled to the CGT discount, any losses they generate could potentially be offset against other income (subject to certain rules and thresholds).”
The regulations vary considerably, so it’s important to figure out what’s right for you and your crypto.
Chain splits can be taxable:
For those who are unfamiliar with the term, Theodorou explained that “chain splits occur when there are two or more competing versions of a blockchain”.
He said, “If you receive new crypto as a result of a chain split – [like] Bitcoin holders receiving Bitcoin Cash – and you hold the new crypto as an investment, you’ll likely make a capital gain when you sell it”.
Details on that are here.
Don’t forget about airdrops:
Ho explained that in the last year, airdrops have become increasingly popular in the crypto and NFT space. If you’re unfamiliar with this term, he shared that “Airdrops are where holders of one token/coin, receive a bonus token/coin as either a reward or replacement coin”.
The ATO defines airdrops this way:
Airdrops are a marketing tool that distribute crypto assets through a group of people to build their use and popularity.
This is relevant to your tax return because “the ATO has come out with their view that “the money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived,” he said.
You can read more on this here.
Staking and interest-bearing product rules:
Much like airdrops, there have also been updates in the ATO’s views of staking rewards.
“Over the past year, we have seen more and more ‘Staking’ and ‘Earn’ products becoming available to crypto holders,” Ho shared.
“Staking and Earn products allow crypto holders to passively earn rewards/interest on their crypto. The ATO considers staking rewards to be income. Whilst the ATO hasn’t put out a view on whether rewards from ‘Earn’ products are taxable, we do expect the ATO to provide guidance on this very soon.”
You can read more about this here, or chat with a crypto-focused tax accountant for advice.
Get specific advice when it comes to NFTs and tax:
When it comes to NFTs and gaming tokens, Ho explained that there have been “intriguing tax issues”.
“The ATO has ruled in a private ruling that NFTs are not personal use assets. However, the private ruling is based on a specific set of circumstances. Not all NFTs and gaming tokens are created equally so there is no one-size-fits-all answer, so again it’s probably best [that] the crypto/NFT holder engages with a tax advisor to know how the rules apply to their circumstances/activities,” he shared.
You can see more about the ATO’s approach to NFTs here.
Don’t forget that crypto trades are taxable
One of the more common misconceptions Theodorou pointed to during our exchange was that some folks believe that the act of swapping one cryptocurrency for another is not taxable.
“The answer couldn’t be further from the truth,” he said.
“Tax is still payable on the trade even if you have not realised any of the gains in fiat. Therefore it is essential that you record the fiat value of the crypto at the time you swap it for the other crypto.”
The ATO has a lot of information available
If you’re still learning how to properly approach your cryptocurrency come tax time, it’s worth having a read through the resources on the ATO website – in addition to speaking with your accountant.
In fact, Assistant Commissioner Tim Loh of the ATO recently made a statement sharing, “We know crypto assets and their tax implications can seem complicated. That’s why our focus is on helping people get it right.”
“Over one million taxpayers will have a message appear as a reminder when they prepare their tax returns saying they may have capital gains or capital losses from crypto to declare,” said Mr Loh.
Theodorou also stated that you can explore the ATO’s private ruling feature option.
According to the ATO website, this is “binding advice that sets out how a tax law applies to you in relation to a specific scheme or circumstance.”
“We know of users who have had very positive experiences getting certainty from the ATO on how the tax rules apply to their crypto activities via the private ruling feature,” Theodorou shared.
He explained that the “feature is often used for issues for which the answer is highly dependant on the facts e.g. whether you’re a trader, investor, or hobbyist. It’s a little-known feature that Aussies can take advantage of.”
We reached out to the ATO for further guidance in this space back in 2021, and a spokesperson for the body shared the below statement:
“Our main focus is on helping people to get it right this tax time. In many ways, income from cryptocurrency is no different to income from other sources. It’s important for people to know, however, that cryptocurrency transactions are not anonymous. The ATO uses the data that it receives from Designated Service Providers (DSPs) to match the data to an individual to ensure people trading in cryptocurrency are paying the right amount of tax.”
So be thorough, and ask questions where necessary.
Hopefully, you’re feeling a little more confident about approaching your tax return this year. When in doubt, however, just reach out to a tax pro.
Lifehacker has updated this piece since its original publish date to reflect details of tax time 2022.