![\"\"](\"https:\/\/cruzandco.com.au\/wp-content\/uploads\/2018\/06\/bitcoin.jpg\")
<\/a>Unless you are living under a rock, most of us have\u00a0heard of the term cryptocurrency or, at the very least, Bitcoin. If you haven\u2019t, cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on the blockchain.<\/p>\nNot that most of us understand what that means. To most people, Bitcoin and other cryptocurrencies were discussed at dinner tables and over drinks across Australia because they were the new black when it came to surging assets. Suddenly, it wasn\u2019t just Dungeons and Dragons players or underworld types who were dealing in cybercurrency, everyone wanted to get in on the action.<\/p>\n
This means in the 2018 financial year there is a boatload of people from Millennials to Baby Boomers who have either owned or sold some type of cryptocurrency asset. If that\u2019s you, with tax time looming, the question you need to consider, is what does buying, selling or holding these cryptocurrencies mean for you?<\/p>\n
Is it like a bank account where you pay tax on interest earned, do you pay tax if you sell the currency or what happens when you use your cryptocurrency to purchase personal use assets?<\/p>\n
The reason it\u2019s important to understand is that the Tax Office is taking a close interest in what you\u2019re declaring when it comes to digital currencies. And the fact that you didn\u2019t know won\u2019t be an excuse if you receive a data matching audit and a please explain.<\/p>\n
According to the Tax Office, Bitcoin and other digital currencies are neither Australian nor foreign currency. Rather, it is an asset for capital gains tax (CGT) purposes.<\/p>\n
A CGT event occurs when you dispose of your cryptocurrency. Examples of disposing include when you sell, trade or exchange your cryptocurrency, convert it to a fiat currency such as Australian dollars, or use it to obtain goods or services. If you make a capital gain on the disposal of a cryptocurrency, some or all, of the gain may be taxed.<\/p>\n
What does that mean for you at tax time?<\/p>\n
Cryptocurrency as an investment<\/strong>\u00a0If you purchased cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency. The good news is if you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount of up to 50 per cent. And don\u2019t forget to include any costs of holding, researching or selling your cryptocurrency which can all be added to the cost base. If you\u2019ve made a gain and you are holding other underperforming assets such as direct shares, you may want to consider selling them prior to 30 June and offsetting these losses with your capital gain. If you made a loss on your cryptocurrency during the year, this can be used to offset any other capital gains you may have either now or in the future.<\/p>\n Cryptocurrency as a personal use asset<\/strong>\u00a0Cryptocurrency may be classified as a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption. If it\u2019s a personal use asset, then capital gains or losses that arise from its disposal may be disregarded. The catch is, only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. For example, if you purchase $1000 worth of cryptocurrency today with the intention of purchasing a concert ticket tomorrow and you make a $50 gain, this small gain may be disregarded.<\/p>\n<\/div>\n Cryptocurrencies used for business transactions\u00a0<\/strong>If you accept cryptocurrencies in exchange for products or services in the normal course of your business, you need to include the value of the cryptocurrency in Australian dollars as part of your ordinary income. This is the same process as if you received any other non-cash barter arrangements.<\/p>\n Carrying on a business in cryptocurrency<\/strong>\u00a0If your business is the trading of cryptocurrency then you may be able to declare your gains as normal income and not capital gains. If you\u2019re unsure of whether you\u2019re carrying on a business or an investor the ATO considers such things as whether you have a business plan and are acting in accordance with that plan, whether you prepare accounting records, if you have a business name, whether you intend to make a profit or genuinely believe you will make a profit, even if you are unlikely to do so in the short term. There\u2019s also usually repetition and regularity to your business activities, although one-off transactions can amount to a business in some cases.<\/p>\n Swapping one cryptocurrency for another\u00a0<\/strong>In your mind this may not be a sale, however according to the Tax Office, this may be a CGT event in which capital gains tax is payable. Essentially you have sold one CGT asset and purchased one or more CGT assets.<\/p>\n With cryptocurrencies firmly in the Tax Office\u2019s sights, it\u2019s important to understand the tax implications for any digital currency transactions you\u2019ve made in the 2018 financial year. That\u2019s because, although the movement of cryptocurrency is anonymous, the ATO through its extensive data-matching regime can track transactions against taxpayers once it has been converted to fiat currency. This means, at some point in the future, you\u2019ll be issued with a please explain and potentially fines and penalties if you haven\u2019t declared income at the point in time when you should have.<\/p>\n<\/div>\n <\/p>\n