Introduction
Cryptocurrency has gained significant attention and popularity in recent years, with many investors and traders now dabbling in the world of digital currency. In Australia, the Australian Taxation Office (ATO) has specific guidelines on how cryptocurrency is treated for tax purposes. One such classification is the “personal use asset” category, which can provide some tax advantages if you meet the criteria. This blog post will discuss how to claim crypto as a personal use asset in Australia and explore the associated benefits and potential risks.
Understanding Personal Use Assets
A personal use asset is defined by the ATO as property acquired and used mainly for personal use or enjoyment. This classification can apply to cryptocurrency when it is used to purchase goods or services for personal consumption, such as buying a coffee or subscribing to an online service. To qualify as a personal use asset, the cryptocurrency must not be held for investment, trading, or profit-making purposes.
How to Qualify
To claim cryptocurrency as a personal use asset, you must meet specific criteria outlined by the ATO:
- The crypto was acquired and used primarily for personal use or enjoyment.
- The crypto was not acquired as part of a profit-making scheme or for the purpose of investment or trading.
- The transaction value of the cryptocurrency should not exceed AUD 10,000. Any amount above this threshold would be considered an investment and subject to different tax rules.
This is outlined in the legislation under sections 118-10 and 108-20 of the Income Tax Assessment Act 1997:
- The asset is “used or kept mainly for your personal use of enjoyment”; and
- The first element of the cost base is less than $10,000 – this is the amount you pay for acquiring the asset usually.
In other words, a “personal use asset” is an asset that is “used or kept mainly for your personal use of enjoyment”.
However, if you hold your cryptocurrency for a longer period of time, the ATO is less likely to consider it a personal use asset. In fact, cryptocurrency is not a personal use asset if it is kept or used mainly as an investment, in a profit-making scheme, or in the course of carrying on a business.
The ATO has published some examples about the personal use asset exemption for crypto. For example, the ATO has accepted that purchasing crypto to spend on personal expenses, such as concert tickets, is a personal use asset. However, the ATO also asserts that holding the crypto for a long period and then using it for personal expenses, is unlikely to be a personal use asset. This is because the primary purpose for holding the asset was to increase its value, and therefore it is not kept mainly for personal use.
Tax Implications of Personal Use Assets
If your cryptocurrency qualifies as a personal use asset, there are tax advantages:
- Capital Gains Tax (CGT): If you dispose of your cryptocurrency, you may be exempt from CGT if the transaction value is less than AUD 10,000. Note that this exemption is on a per transaction basis, so it’s crucial to keep detailed records of your cryptocurrency transactions.
- Goods and Services Tax (GST): As of July 1, 2017, GST is no longer applied to cryptocurrency transactions in Australia. Therefore, you will not be charged GST when using your personal use asset for purchases.
Record Keeping
To claim your cryptocurrency as a personal use asset, it’s essential to maintain comprehensive records of your transactions. Keep track of the following information:
- The date of each transaction
- The value of the cryptocurrency in Australian dollars at the time of the transaction
- The purpose of the transaction (including proof of personal use)
- The recipient’s details, including their name and address
These records will be crucial in case the ATO requires evidence to support your claim for personal use asset classification.
Risks and Considerations
While there are tax advantages to claiming your cryptocurrency as a personal use asset, there are also potential risks:
- The ATO may scrutinise your transactions, so you must maintain detailed records to substantiate your claim.
- If your circumstances change and you begin using your cryptocurrency for investment or trading purposes, it may no longer qualify as a personal use asset, and you may be subject to CGT and other tax implications.
Conclusion
Claiming your cryptocurrency as a personal use asset in Australia can provide tax benefits if you meet the ATO’s criteria. However, it’s essential to be aware of the requirements and maintain detailed records to support your claim. Consult with a tax lawyer to ensure you are taking the correct approach to managing your cryptocurrency and meeting your tax obligations. To make it easier to track holding times, quantities, and use of crypto assets, you can use tools like Crypto Tax Calculator.
Key takeaway: The most important factor for determining if your crypto is for “personal use” is the reason for holding it, not the reason for using it.
This material is produced by Cadena Legal, an NSW registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Contact us here.
