Do I need to pay tax on my Cryptocurrency earnings?
Short answer; Yes. Any earnings received via cryptocurrency count as income. So if you’ve bought or sold cryptocurrency in the last financial year, it’s time to start thinking about the impact this may have on your income tax return. If you’ve made a profit trading cryptocurrency, you’ll need to declare it in your annual return. Generally speaking, there are no tax implications if you simply pay for goods or services using cryptocurrency (i.e. for your personal use.)
So what exactly is cryptocurrency?
The term “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 a blockchain. Cryptocurrency generally operates independently of a bank or Government.
How does the ATO handle cryptocurrency earnings?
The profits or losses on these transactions are what gets taxed. Depending on the situation, this can get taxed in two different ways; taxed as income, or taxed as an investment. In a business or professional situation they are taxed as income. In a Personal situation, they are taxed as investment. Let’s look at how the two are defined:
|Business or Professional||Personal|
If you have dealt with a foreign exchange and/or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.
What you need to do when it comes to tax time
It is vital to keep good records for all your transactions with cryptocurrency, whether you are using cryptocurrency as an investment, for personal use or in business.
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)
- what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).
The sorts of records you should keep include:
- receipts of purchase or transfer of cryptocurrency
- exchange records
- records of agent, accountant and legal costs
- digital wallet records and keys
- software costs related to managing your tax affairs
Not only is cryptocurrency taxation complicated and confusing, it’s also in its early stages and is still evolving. Here at NCA we can help you navigate the minefield of Cryptocurrency to ensure everything is submitted correctly with the ATO. Contact us here to discuss your situation.