How to Avoid Tax on Cryptocurrency in Australia

how to avoid tax on cryptocurrency australia

Cryptocurrencies are becoming more and more popular, but many people don’t realise that they’re also taxable. In this post, we’ll go over some tips on how to avoid tax on cryptocurrency in Australia, so you can keep as much of your hard-earned money as possible.

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Tax on crypto in Australia

According to the Australian Taxation Office (ATO), about 500,000 to 1 million Australians own cryptocurrency. Although it’s becoming increasingly popular, it can be tricky to avoid taxes on it. Before you look for tips on how to avoid tax on cryptocurrency in Australia, here are some things you need to know.

Do you pay tax on crypto in Australia?

Yes, you do pay tax on crypto in Australia. Like any other asset, crypto is subject to capital gains tax (CGT) when you dispose of it. If you’re selling your crypto for more than you paid for it, you’ll need to pay tax on the profit.

Will ATO know about your crypto?

That depends on the following:

  • If you’re only buying and selling cryptocurrency through approved exchanges, then there’s a good chance that the ATO will know about it. 
  • If you’re using other methods for buying and selling crypto (like peer-to-peer transactions), then it’s much harder for them to track

Note: even if the ATO can’t directly see all your transactions, that doesn’t mean they can’t find out about them indirectly.

How does Australia tax cryptocurrency?

The general principles of taxation apply—any profits made from cryptocurrency transactions are subject to CGT.

When it comes to calculating your CGT, you will need to take into account the following:

  • The purchase price of your cryptocurrency
  • Any costs incurred in acquiring the crypto (such as transactions fees) 
  • The selling price of the crypto.

Since the ATO classifies cryptocurrency as an asset, you don’t have to worry about how much you need to report to the ATO, just choose one of the best crypto tax software.

Figure out if you’re an investor or a trader

Let’s take a look at the differences between crypto investors and traders.

Crypto investor

If you are a crypto investor, buying some form of cryptocurrency is seen as a personal investment, and you won’t be taxed until you decide to dispose of it

As investors will pay 50% less tax on crypto gains if they hold for one year before disposing of them, many see this as a way how to avoid tax on cryptocurrency in Australia. True, this isn’t exactly ‘avoiding’ tax, but being seen by the ATO as a crypto investor helps you pay much less than you would have paid as a crypto trader.

Crypto trader

As traders hold onto their cryptocurrency for much shorter and trade or sell it for profit frequently, their trading is seen as a business, and as such is subject to a different form of taxation by the ATO. This can be a good way to turn a profit short-term, but long-term, you’d have to pay 50% more than you would as an investor

Capital gains tax

In Australia, when you’re selling something that has increased in value, you have to pay capital gains tax on the profit (this also applies to cryptocurrency, which is seen as an asset). Both individuals and companies pay it, and many factors determine how much CGT you have to pay.

How to work out your capital gains tax?

To work out your capital gains tax on crypto in Australia, you need to know the following:

  • The cost of the asset when you bought it
  • The amount you sold the asset for
  • Your taxable income (this can be found on your last tax return)

The ATO website has a handy calculator that can help you work this out. Also, if you’ve lost capital by buying, selling or trading crypto, you use this loss to reduce the tax you’d pay on other capital gains you might have had in the current year. You can also carry it into a future fiscal year. 

Note: If you held onto your cryptocurrency for less than 12 months, your profits are considered taxable income and will be taxed at your marginal rate. If you’re selling a cryptocurrency 12 months after acquiring it, you may be eligible for a 50% CGT discount.

Tax on lost or stolen crypto

If your cryptocurrency is lost or stolen, you still have to pay capital gains tax on cryptocurrency (i.e. tax on the difference between the purchase price and the sale price). If you can’t provide evidence of when and how you lost your cryptocurrency, the ATO will deem that you disposed of it at the time it was lost or stolen.

Income tax

If you’re a trader, your crypto may be treated as income, thus income tax will be applicable to you. Especially in these cases:

  • Getting paid in crypto
  • Airdrops
  • Staking rewards
  • Referral bonus
  • DeFi interest

Tax-free crypto transactions

There are some cases when you don’t have to pay tax on crypto in Australia. For example, if you use it for personal (rather than business) reasons, or if you earn or spend less than AU$10,000 on crypto-related transactions. 

So, how to avoid tax on cryptocurrency in Australia? You can do this if you’re doing anything of the following:

  • Buying crypto with fiat
  • HODLing crypto
  • Moving crypto between wallets
  • Mining crypto as a hobby
  • Donating crypto to charity

Tax on buying crypto

Do you pay tax on crypto in Australia if you’re buying it? That depends on the following:

  • Buying crypto with fiat currency – there is no tax on buying crypto with fiat currency in Australia (such as AUD, USD, or GBP). However, other taxes may apply, depending on your specific circumstances.
  • Buying crypto with crypto – when you do this, you’re effectively exchanging one currency for another, which is considered taxable.

Tax on selling crypto

You will have to pay tax on crypto in Australia if you’re selling it. However, if you HODL for 12 months, you will pay 50% less tax. Capital gains tax on cryptocurrency is applicable, no matter the selling method:

  • Selling crypto for fiat – if you convert cryptocurrency to a fiat currency, the CGT applies. If you sell cryptocurrency and make a profit, 100% of the gains may be taxed in the first year, and 50% in the following years. Capital gains or losses from selling a personal use asset cryptocurrency are disregarded.
  • Selling crypto for crypto – When trading one cryptocurrency for another, you are trading one CGT asset for another, which is a taxable event. Because you get property in return for your cryptocurrency rather than money, the market value of the transferred cryptocurrency must be measured in Australian dollars.

Moving crypto between wallets, exchanges and pools

You don’t have to pay capital gains tax on cryptocurrency stored in a digital wallet. There are a few different ways to move crypto between wallets or exchange it. People mostly use:

  • A service called a “crypto exchange”
  • A “hardware wallet” (physical devices that store your cryptocurrency offline and can only be accessed with a special PIN code). They are much more secure than online wallets (but also more expensive).

If you’re only moving a small amount of crypto, you can send it from one wallet to another using the cryptocurrency’s address. For larger amounts, try using a service like ShapeShift or Coinbase Exchange to convert your cryptocurrency into another type before sending it to your other wallet.

Note: while you don’t have to pay tax on crypto in digital wallets, you may have to pay transfer fees. Most digital wallets don’t charge transfer fees, but some do; make sure you check which ones do.

Tax on mining crypto

The amount of tax you pay for mining depends on:

  • The type of crypto asset – if you’re mining a well-known crypto (e.g. Bitcoin), you’d pay capital gains tax on cryptocurrency on any profits you make from selling it; however, if you’re mining a less-known crypto (eg. Ethereum), you may be liable for paying GST (goods and services tax).
  • Whether you’re a hobby miner or a trader
  • How much income do you generate from your mining activities

Bottom line

So, how to avoid tax on cryptocurrencies in Australia? This depends on whether you’re an investor or trader if you’re engaging in tax-free crypto transactions, and how you’re selling and buying it. If you want more information about paying tax on crypto, it’s best to speak to a financial professional.

FAQs:

1. Can the ATO track cryptocurrency?

In Australia, the ATO can track cryptocurrency provided that the holder of the cryptocurrency has properly declared it in their tax return. If not, the ATO may come after you for back taxes and penalties.

2. How can I avoid getting taxed on crypto?

You’re wondering how to avoid tax on cryptocurrency in Australia? You can hold onto your crypto for a year before selling it to pay 50% less CGT. Another way is to engage in tax-free crypto transactions, such as moving crypto between wallets or mining crypto as a hobby.

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