Cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Ripple are growing in popularity. They are here to stay. Businesses are accepting them for payments. Even the countries are legalizing them. However, the tax laws on cryptocurrencies in different countries vary and one must be aware of their tax liability. This article focuses on how Australia handles cryptocurrency taxation.
Why should I care?
If you trade crypto, the ATO considers it as ‘trading stock’ and will tax you at your marginal rate for capital gains or losses. This means that if you hold onto a coin for less than 12 months before selling it, you will be taxed at your marginal rate (up to 47%). If you sell a coin after holding onto it for more than 12 months, then capital gains tax is discounted by up to 50%. You will only have to declare your profit as income and pay taxes on the gain at your marginal rate (up to 47%).
If you buy cryptocurrency with Australian dollars and immediately convert them into another cryptocurrency or fiat currency, then this will be treated as a barter transaction (like swapping one good or service for another). You need to declare these transactions on your tax return as income or loss according to the value of your trade at the time of conversion.
How does it work?
The ATO explains that it is not illegal to use or trade bitcoin, or any other cryptocurrency, in Australia. However, if you are making a profit from trading cryptocurrencies, then you have to declare your earnings and pay taxes on them.
The ATO has said that cryptocurrencies will be treated as property for tax purposes. This means that all profits from selling your cryptocurrency investments will be taxed at your marginal rate of income tax (currently up to 45%). Capital losses can be used against capital gains and other income sources, but not against other capital losses.
The ATO explains that if you are buying and selling cryptocurrencies as an investment rather than using them as a means of payment, then the profits (or losses) are calculated using the following formula:
Cost base x indexation method x proceeds = capital gain/loss
Resident tax rates 2021–22
|Taxable income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $45,000||19 cents for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||$29,467 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45 cents for each $1 over $180,000|
The above rates do not include the Medicare levy of 2%.
When can I start filing my taxes?
When you can file your tax return depends on how long it takes you to complete it.
If it’s a simple return, like for basic taxable income from just a few sources, you may be able to file by 31 October [Year]. This is the due date for the 20xx-xx financial year.
If your return is more complex and involves income from several sources, or if you’re self-employed, then you should allow more time to prepare your tax return – up until 28 April 20xx. Make sure to check with ATO or tax professional regarding due date applicable based on your circumstances to avoid late lodgement penalties.
You can start preparing your return as soon as you have all your documents and information together. If you don’t need all this information at once, there’s no reason not to start preparing now so that when it comes time to submit your tax return, the process will be much easier.
Final thoughts on crypto tax in Australia
In Australia, the ATO ( https://www.ato.gov.au/) is your go-to source for complete, up-to-date information on cryptocurrency taxation. Here you can find historical cryptocurrency rates of taxation in Australia as well as rates specific to your situation based on examples.
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