IT'S TAX TIME IN AUSTRALIA!

Yes its that glorious time of year when we have to hand over some of our hard earned to the government.

But this year more than any other, thanks to Crypto's meteoric rise, there is a lot of confusion about how to treat our 'Crypto gainz' for tax purposes.

Despite the recent good news about the removal of GST from Bitcoin, there is actually no change to its treatment for income tax purposes.

Lets have a look at what the Australian Tax Office(ATO) has to say on the matter.

For the sake of easier reading i will use the word 'Bitcoin', but the laws apply equally for whichever CryptoCurreny you hold.

USING BITCOIN TO PAY FOR PERSONAL TRANSACTIONS

Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.

So if you have spent less than $10,000 on purchasing your Bitcoin in the last financial year, any gain you made will be exempt from having to pay Capital Gains Tax, providing that it is for personal use and not as part of a business. If you have multiple uses for your Bitcoin, the ATO recommends getting a private ruling on whether to class it as personal use or not.

"But 1 Bitcoin isn't worth $10,000(yet)!" I hear you say.

Thats where this clause comes in:

108-25(2) The set of *personal use assets is taken to be a single *personal use asset and each of your *disposals is a disposal of part of that asset.

The ATO is saying here that ALL of your Bitcoin together is classed as a single asset. So you cant claim the CGT exemption on each Bitcoin you own.

NOT PERSONAL USE? SO CAPITAL GAIN OR ORDINARY INCOME?

In the case of an isolated transaction that is not carried out as part of a business operation:

the Commissioner considers that a gain will generally be ordinary income where the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and the transaction was entered into in carrying out a commercial transaction.

And what makes it a commercial transaction?

It depends on the size and intent of the investment. If you only intend to trade with it to make a profit, and are not going to use it to buy goods or services, then it will be classed as a commercial transaction and treated as ordinary income.

On the other side:

where a taxpayer mines a small amount of bitcoin as a hobby and after two years decides to sell the bitcoin for a small profit in order to purchase a more stable investment item, the gain will be assessed under the CGT provisions, not as ordinary income.

OH GOOD ITS EASY, SO THERE'S NOTHING TO WORRY ABOUT?

Well, no.

It all depends on how you personally use your Bitcoin, and you may need a private ruling on your particular situation.

Go see a Certified Accountant. They are the ones with the knowledge and experience to cut through the ATO's jargon, and apply it to YOUR specific needs.

Hopefully this article has given you a little bit of an overview of what to expect when you do your taxes this year.

Thanks for reading.

References:

https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia---specifically-bitcoin/
http://law.ato.gov.au/atolaw/view.htm?DocID=TXD/TD201426/NAT/ATO/00001
http://law.ato.gov.au/atolaw/view.htm?locid=%27PAC/19970038/108-25%27&PiT=99991231235958#108-25

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