How to Calculate Your Crypto Capital Gains Tax in Australia
If you’re like many Australians, you’ve probably invested in cryptocurrency at some point over the past few years. And if you’re like most investors, you’re probably wondering how these gains will be taxed.
Here’s a quick overview of what you need to know.
What kind of investor are you?
In Australia there are three broad ways you are subject to income tax:
- An investor, under the Capital Gains Tax rules;
- Carrying on a business (i.e. a crypto trader) taxed under regular principles of ordinary income.
- Very rare – but as a ‘profit making undertaking or scheme’ which is taxed as income but only for that specific activity (you aren’t running a business).
Investor and business are the most common categories.
Investors, CGT and Crypto
The first thing you need to know is that there are effectively two different types of capital gains tax: short-term and long-term. Short-term capital gains are profits on assets you have held for less than 12 months, and long-term capital gains are for assets you have held for more than 12 months.
These investors are taxed under the Capital Gains Tax rules and usually don’t get any deductions. Instead some costs are included in the cost base. See our Capital Gains Tax article for more details.
Professional Traders and Income Tax
If you are carrying on a business of trading in crypto assets, your profits will be taxed as ordinary income and any losses are tax deductible. It is a grey area on whether you are carrying on a business so see our Are you carrying on a business post.
On top of this, you would likely fall into the trading stock rules. These rules operate to make you do an annual count of all your trading stock with the following effects:
- If the value of your trading stock is more than last year, you include the difference as income; and
- If the value of your trading stock is less than last year, you include the difference as a deduction.
These rules effectively stop you from acquiring large amounts of stock to bring forward deductions and generally align with accounting concepts. You should get an accountant if you are a professional trader subject to the trading stock rules.
Conclusion Cryptocurrency investment is becoming increasingly popular in Australia, but it’s important to be aware of the taxes that apply to these investments. Capital Gains Tax or Income Tax applying is critical for how much tax you pay and whether you should be using companies and trusts.
If you are unsure if you are paying too much tax, you should contact us for advice.