Did you know that the Australian Taxation Office (ATO) receives information from cryptocurrency-designated service providers about Australian taxpayers who engage in buying, selling, exchanging or transferring cryptocurrency since the 2014/2015 financial year? The ATO data-matches the information received against what people declare in their tax returns. Consequently, if you have sold, exchanged or transferred cryptocurrency, the capital gains or losses you’ve incurred must be declared in your tax return.

Transacting with cryptocurrency

A Capital Gains Tax (CGT) event occurs when you dispose of your cryptocurrency. Examples include when you sell, trade or exchange your cryptocurrency, convert it to a fiat currency like 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 gains may be taxed. Certain capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded. Furthermore, in accordance with TD 2014/27, bitcoin received as a method of payment by any business that sells goods will also be considered to be trading stock of that business where the bitcoin is held for the purposes of sale or exchange in the ordinary course of the business.

Personal investment in cryptocurrency

If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on the disposal of the cryptocurrency. If you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount. If the capital proceeds from the disposal of the cryptocurrency are less than its cost base, you will make a capital loss. A capital loss can be used to reduce capital gains made in the same year or a later year. Net capital losses cannot be offset against other income.

Example of cryptocurrency investment: John purchased a range of cryptocurrencies that he has added to his investment portfolio. John adjusts his portfolio from time to time in accordance with appropriate investment weightings. If John sells some of his cryptocurrency the proceeds would be subject to CGT. He has acquired and held his cryptocurrency as an investment.

Using cryptocurrency for personal transactions (personal use asset)

Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded. Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption. Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded, provided the cost of the bitcoin is $10,000 or less.

Example of personal use asset: Purchasing personal goods or services over the internet using bitcoin.

Example of not a personal use asset: John has been acquiring Bitcoin over the last year with the intention of selling at a favourable exchange rate and making a profit. Because John acquired the Bitcoin as an investment, the cryptocurrency is not a personal use asset.

Using cryptocurrency for business transactions

If you receive cryptocurrency for goods or services you provide as part 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 receiving any other non-cash consideration under a barter transaction. One way of determining the value in Australian dollars is the fair market value which can be obtained from a reputable cryptocurrency exchange.

Where you purchase business items using cryptocurrency, (including trading stock) you are entitled to a deduction based on the arm’s length value of the item acquired.

If your business is registered for GST, then GST is calculated on the value of the goods or services supplied and purchased. In summary, GST is payable on the supply of goods or services, and GST input credits are claimable on purchases of goods or services.

Please note:

There is no current legislation in Australia that contains rules under which cryptocurrencies gains and losses are brought to account when they are realised and converted to Australia dollars. The ATO’s view of cryptocurrencies is that “cryptocurrencies are neither money nor Australian or foreign currency”, and therefore Foreign Exchange gains and losses provisions do not apply.

Consequently, in the example used above, the Bitcoin cryptocurrency was being used in the context of carrying on a business, therefore any cryptocurrencies that are received or disposed of are part of assessable income calculations. Subsequently, any profits or gains are treated as ordinary income, and any expenses or losses are treated as deductions (Refer to QC2159).

Disposing of bitcoin acquired for investment

If you have acquired bitcoin as an investment, capital gains tax could apply. If you are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale or allowed any deductions for any losses made. However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income. Note: There are no GST consequences where the bitcoin is not supplied or acquired in the course or furtherance of an enterprise you are carrying on.

Record keeping

You need to keep the following records in relation to your cryptocurrency transactions:

  • The date of the transactions
  • The value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
  • The nature of the transaction and who the other party was (even if it’s just their cryptocurrency address).

Bitcoin mining and its tax treatment

Bitcoin miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. Generally, when undertaking Bitcoin mining activities, it needs to be determined by analysis of your own activities as to whether this involves carrying on a business or not. If your circumstances are such that you are in the business of Bitcoin mining, you will need to treat your activity the same way as any other business activity and report it to the ATO.

All reporting to the ATO must be made in Australian dollars. To convert the value of Bitcoin to Australian dollars you can use the Bitcoin value as published by a reputable exchange on the date of the relevant transaction.

As a miner carrying on a business, any bitcoin that you acquire from mining is treated as ‘trading stock’. As in any other business, proceeds from the disposal of trading stock represent assessable income.

Losses you make from a business of Bitcoin mining will be deductible against your other income, however, losses you make will be subject to the Non-commercial loss provisions.

You may view your mining activities as a hobby, however, the personal use asset exemption rules may not apply to exclude any capital gains made on the disposal of the bitcoin. The exemption applies on the basis of how you use or keep the bitcoin that you have acquired from your mining activities. Even if your costs of mining the acquired bitcoin are less than $10,000, this may not fit within the definition of that of using or keeping mined bitcoin as a personal use asset. A personal use asset is defined as an asset “that is used or kept mainly for your personal use or enjoyment”. The primary situation that the ATO considers that Bitcoin can be used or kept mainly for personal use or enjoyment is where it is acquired and then kept temporarily in order to obtain personal use items; such as paying for goods or services with the cryptocurrency.


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