A cryptocurrency (or “crypto”) is a digital currency or asset that can circulate and secure online payments without the need for a central monetary authority such as a bank. It enables people to buy, sell or trade securely. The transaction is stored in a digital ledger called a blockchain, a digital form of record keeping.

Cryptocurrency does not exist in physical form and is not considered as money but as property by the ATO for capital gains tax purposes. This includes cryptocurrency coins, NFTs and tokens.

What is its tax treatment?

A crypto asset when dispose of creates a Capital Gain Tax (CGT) event, either a capital gain or capital loss. You report capital gains and losses in your income tax return and pay income tax on any net gains. The percentage of income tax is the same as your income tax rate, if you hold for a year, you will receive a 50% discount on your capital gains for that particular crypto asset.

An exchange rate at the time of disposal or purchase is used to convert a crypto asset to Australian dollars.

Examples of disposal transactions that triggers a CGT event are the following:

• When you sell a crypto asset,
• gift,
• trade, exchange or swap,
• convert to Australian or foreign currency and
• when you buy goods or services using a crypto asset

When you gift your crypto asset to someone or an organisation, you have to calculate the value of this crypto asset in order to know if you are making a CGT gain or loss.

To claim a tax deduction for a gift or donation of a crypto asset, it must meet certain conditions and rules.

And if you do not know the value of a crypto asset you receive in an exchange or swap, you should use the market value of the crypto asset that you are disposing of to calculate the capital proceeds.

Record Keeping of a Crypto Asset

You will need to keep record of whatever you do with your crypto asset. This includes the date, the number and type of crypto asset and the market value at the time of purchase as well as upon the disposal either by selling, gifting, or donating your crypto asset.

Be sure to check that the ownership of the crypto assets is transferred into your legal name.

You can claim a capital loss if you can provide evidence of ownership if your crypto asset is lost or stolen which you can use to reduce any capital gains.

Need assistance in calculating your cryptocurrency CGT? Contact us now.

Yan (Jenny) Qi CA

Founder of Progress CA Pty Ltd

Tel. no. 0403 050 779

Email: info@progressca.com.au

Website: www.progressca.com.au