6 Biggest Questions on Tax & Crypto Currencies
(updated for Aug 2018).
Crypto markets have seen a wave of activity at present.
Last thing we want are unplanned tax bills on our hands so thought to help some crypto rookies around the main questions we get asked around crypto and tax.
1) If I trade between crypto currencies like NEO to ETH and make a gain - is this taxed?
Here we need to determine whether trading our crypto stash is business-like in nature. Basically if you're trading at least semi-regularly with the intent to profit (and who isn't?) then the full amount of the gain can be assessable. There may be some trading losses of course to offset these.
If hardly trading (i.e. buy and hold), then potentially a 50% discount could be applied on the capital gain you made.
You will need to consistently hold the one currency for over 12 months for this to play out though.
2) What entity structures are available to help me with my tax situation?
Discretionary trust structures are typically the home of many a portfolio and these could be used to distribute the net income from your trading across a few family members.
Policy makers & millionaires have been using these vehicles for their investments for ages. You'll need to establish a wallet under the family trust structure however.
3) If I purchase services using crypto does this lead to a capital gain?
Per the two situations above, yes this can result in a capital gains event (from the 'disposal' of your portfolio). Just because you don't convert to fiat doesn't mean there is no tax to pay.
4) I bought a parcel of crypto when it was just a couple of hundred dollars, it's now worth a few thousand what do I need to do?
If your portfolio of BTC, etc. cost less than $10,000 and you later trade it then that first gain may be exempt particularly if you are just holding it. If it eventuates into trading, a different story altogether - with the net income being assessable. If not sure, budget away a chunk towards a future tax bill in the future.
5) I trade on a consistent basis - a few times a day even. What type of information should I be taking note of?
Similar to traders of equity - crypto traders should be tracking details like:
When you buy - Date of purchase, value of crypto on purchase, fees on transaction & which crypto currency.
When you sell - Date of sale, value of crypto on sale, fees on transaction & which crypto currency.
If your exchange is lacking in the information - could also try and add-on like Coin Tracker to help track the important details.
6) When is trading of crypto tax-free?
This is available in very limited circumstances. Basically need to prove to the ATO two things:
- You acquired the portfolio for less than $10,000 and
- You held it mainly for 'personal use' (aka not trading/business activity)
If so then it is likely there would be no taxable capital gains.
So hope you found the above useful somewhat. Just because you haven't drawn out to fiat currency yet, doesn't mean some tax isn't yet payable.
Reach out to a bitcoin accountant to help plan for this eventuality properly. The above of course only constitutes general advice where specific advice should always be sought for your own particular situation.
www.fullstack.com.au/bitcoin-taxes has more details if you'd like to learn more. And yes, we occasionally accept crypto for accounting and tax services.