The following is a brief explanation on the tax implications of using, buying and selling Bitcoin and other similar crypto-currencies.
As an Individual
Tax Implications on Sale of Bitcoin and Similar Crypto-Currencies:
The tax implication of Bitcoin and similar crypto-currencies depends on the intent of the individual.
- If an individual purchases crypto-currency and then sells without trading or using the coin, the ATO considers this as an investment and CGT applies.
- If an individual purchases crypto-currency and then uses the funds for trading, there will be no tax implication provided that the cost of the currency is under $10,000. If more, CGT will apply.
Once we establish that a CGT event takes place, the tax implication is;
- A capital gain will be calculated by subtracting the cost of the currency by the proceeds received from the sale. The difference will then be included in your tax return as income which is then taxed based on your marginal tax rate.
- In the unfortunate situation where you have incurred a loss on the sale of a crypto-currency we must still declare this in your tax return as a CGT event. However, should the cost exceed the proceeds the resulting capital losses will be carried forward to future years and will offset any future capital gains.
- If you sell bitcoin and similar currencies after one year from the purchase date, any capital gains will be reduced by 50%. For example, a capital gain of $40,000 will be reduced to $20,000. The reduced amount will then be recorded as income in your return and will be taxed at your marginal tax rate.
Documentation & Record Keeping:
- The date of the transactions
- The amount in Australian dollars (which can be taken from a reputable online exchange)
- What the transaction was for
- Who the other party was (even if it’s just their bitcoin address).
As a Business
- If you receive bitcoin for goods or services you provide as part of your business, you will need to record the value in Australian dollars as part of your ordinary income. This is the same process as receiving non-cash consideration under a barter transaction.
- When receiving bitcoin in return for goods and services, a business may be charged GST on that bitcoin. If the supply of the goods and services was a taxable supply, the business will be able to claim input tax credits on the GST charged on the bitcoin they received as payment.
- Where you dispose of bitcoin as part of running a business, there may also be capital gains tax consequences incurred. However, any capital gain is reduced by the amount included in your assessable income as ordinary income.
- Where you are running a business, and purchase relevant items using bitcoin (including trading stock) you are entitled to a deduction based on the arm’s length value of the item acquired.
- In the pursuit to further business operations, GST is payable on the supply of bitcoin. GST is calculated on the market value of the goods or services. This is usually equal to the fair market value of the bitcoin at the time of transaction.
How We Can Help
With the complications surrounding the tax treatment of crypto-currencies, we are well equipped to provide you with sound accounting and tax advice.
Should you need our advice or have any questions, please call us on 02 9629 1300 to book an appointment