Cryptocurrency Taxes in Australia 2021: The Complete Guide
Two things in life are certain: death and taxes. If youâve been trading cryptocurrencies on Binance Australia or participating in other cryptocurrency-related activities in the last financial year, you may have an obligation to report your activities in your next tax return.
While taxes can be deathly dull, they donât have to spell the end of you. This guide summarises the various taxes that apply to cryptocurrency activities, complete with scenarios to help you determine whether you are likely to have tax obligations and, if you do, how to calculate your payable tax.
IMPORTANT: This guide relies on publicly-available information provided by the Australian Taxation Office (ATO) and is current as of 3 February, 2021. The following information is general in nature and is not a substitute for professional tax advice. We are not financial or legal advisers, nor should the information contained in this guide be construed as legal or financial advice. If you require more information, please see the ATO website, which has a number of cryptocurrency-specific explanatory resources available, or consider seeking independent financial or legal advice.
Overview of Cryptocurrency Taxes
There are two types of taxes that may be applicable to your cryptocurrency activities: capital gains tax (CGT) and income tax. Which tax applies depends on what types of cryptocurrency-related activities you engage in and whether you operate as an investor or a trader (which the ATO considers to be a business). In some cases, both taxes may be payable.
Capital Gains Tax
A CGT event occurs when you âdisposeâ of a cryptocurrencyâthat is, when you sell it for AUD, trade it for another cryptocurrency, gift it to someone or, in some cases, when you use it to purchase goods or services (more on this last point later). When you dispose of a cryptocurrency, you will either make a capital gain or loss.
To determine your capital gain or loss, calculate the AUD price that you paid to acquire the cryptocurrency (including any fees). This is your âcost baseâ. Then, subtract the cost base from the AUD price that you sold the cryptocurrency for. This is your âsale priceâ. Expressed as a simple formula, calculating your capital gain/loss looks like this:
Capital Gain/Loss = Sale price - Cost base
Note: Both the sale price and cost base are always in AUD. When calculating your cost base, donât forget to include any brokerage/trading fees.
If you own an asset for more than 12 months, youâll likely be entitled to receive a CGT discount. The discount percentage is 50% for individuals and trusts and 33.33% for complying super funds. However, the CGT discount does not apply to companies (aside from eligible life insurance companies). To see how to apply the CGT discount, take a look at the second example in the Scenarios section in this guide.
Income Tax
For investors, income tax applies to cryptocurrencies that are earned through staking, airdrops, or where cryptocurrency is earned in exchange for goods or services. For traders, income tax applies to most cryptocurrency-related activities instead of CGT (see the next section).
The taxable income that you record is based on the âfair market valueâ of the cryptocurrency at the time that it was earned, which is simply the quoted market price in an active and liquid market.
Difference Between Investors and Traders
Whether you pay CGT or income tax on your cryptocurrency activities depends on whether the ATO classifies you as an investor or a trader. Investors who dispose of cryptocurrency will be subject to CGT, whereas the profits from the disposal of cryptocurrency will form part of a traderâs taxable income.
Investors
If you hold an asset with the view of making a long-term gain and make occasional trades, youâre likely to be classified as an investor. You will need to pay CGT when you dispose of cryptocurrency and declare any cryptocurrency you earn from activities like staking or airdrops as income in your tax return.
Traders
In contrast, a trader is someone who carries on a business for the purpose of earning income from buying and selling assets. Traders will need to apply for an ABN, which also means that they may be able to deduct certain expenses associated with their trading activities.
In terms of taxes, the purchase and sale of cryptocurrencies by a trader will form part of the traderâs taxable income as a sole trader. When filing their tax report at the end of the financial year, traders will record their profit as the difference between their income and expenses, including the change in value of their portfolio from the start of the financial year to the end of the financial year. If a net loss is recorded instead of a net profit, the loss may be able to be deducted from the traderâs other income earned in the financial year.
Note: Though thereâs no clear guidance from the ATO on margin trading and derivative trading of cryptocurrencies, if youâre a trader, these activities should also likely be included in your taxable income.
To determine whether youâd be classified as a âtraderâ, the ATO provides the following set of guiding principles that have been used to make this determination in previous court cases:
Nature of activity and purpose of profit making: there must be more than just the intention to make a profit, such as details of how the activity has actually been carried out or a business plan that demonstrates analysis of investments, the market, and/or other research.
Repetition, volume and regularity: it is more likely that you are carrying on a business where you frequently make similar transactions, trade in high volumes, and engage in trading activities on a regular basis.
Organisation in a business-like way and keeping records: your qualifications and the manner in which you conduct your trading activities will be considered, e.g. whether you engage in the study of relevant trends and keep all of your purchase/sale records.
Amount of capital invested: you do not need to invest a large amount of capital to be considered a trader. You may be considered a trader even when you invest a relatively small amount or, conversely, you may be considered an investor where you invest a substantial amount.
Investor Scenarios
Below, we take a look at some common investor scenarios (note: not trader scenarios) to determine whether CGT or income tax applies and how to work out any applicable capital gains/losses.
1. Buying cryptocurrency
When you purchase cryptocurrency, CGT does not apply. Buying and holding is a simple and popular trading strategy, and as long as you donât dispose of your cryptocurrency, no CGT will apply.
Example: Chris purchases 2 BTC for $30,000 and stores it in his wallet. Even though the AUD price of his 2 BTC rises and falls, he does not have to pay any CGT on his purchase unless he decides to dispose of his BTC.
2. Selling cryptocurrency for AUD
Selling your cryptocurrency for AUD is a disposal and therefore CGT applies. To calculate your capital gain/loss, simply use the formula Capital Gain/Loss = Sale price - Cost base.
Example: Paul purchases 0.75 BTC for $10,000. Fourteen months later, he sells his BTC for $18,000. Ordinarily, his capital gain would be $8000 (i.e. $18,000 - $10,000) and he would need to pay CGT on this amount. Because Paul held the asset for more than 12 months, however, he receives the 50% CGT discount and only pays CGT on $4000.
3. Trading cryptocurrency for another cryptocurrency
When exchanging your cryptocurrency for another cryptocurrency, such as BTC for ETH, CGT applies. To calculate your capital gain/loss, simply use the formula Capital Gain/Loss = Sale price - Cost base.
Example: Bill buys 3 ETH for $800. Seven months later, Billâs ETH is worth $2,500, at which point he decides to trade the 3 ETH for 0.2 BTC. His capital gain is $1,700 (i.e. $2,500 - $800) and Bill will need to pay CGT on this amount.
4. Trading stablecoins
The ATO considers stablecoins like Tether (USDT) or Binance USD (BUSD) to be just like any other cryptocurrency, and therefore CGT applies. To calculate your capital gain/loss, simply use the formula Capital Gain/Loss = Sale price - Cost base.
Example: Lily purchases 0.5 BTC for $22,000. One month later, her BTC is worth $27,000. Lily suspects that the BTC price will fall, so she exchanges her BTC for BUSD. Her capital gain is $5,000 (i.e. $27,000 - $22,000) and Lily will need to pay CGT on this amount.
5. Gifting cryptocurrency
Gifting cryptocurrency to another person is taken to be a disposal, and therefore CGT applies. To calculate your capital gain, you can use the formula Capital Gain/Loss = Sale price - Cost base. However, your sale price will be a little different since you are not technically selling cryptocurrency when you gift it. To determine your sale price, the ATO states to use the fair market value of the cryptocurrency on the date the gift was made.
Example: Lachy buys 0.1 BTC for $1,000. Six months later, he decides to gift his sister, Amanda, the 0.1 BTC for her birthday on the 24th of May. On this date, 1 BTC is worth $30,000, and hence the fair market value of 0.1 BTC is $3,000. Lachyâs cost base is therefore $1,000 and his capital gain from the gift will be $2,000 (i.e. $3,000 - $1,000).
If you are the recipient of a cryptocurrency gift, you do not have to pay CGT when you receive the gift. However, CGT is payable when you dispose of the cryptocurrency. In this instance, your cost base will be the fair market value.
Example: Amanda decides to sell the 0.1 BTC she received from Lachy for $4,500 a few months later. Her cost base will be the fair market value of 0.1 BTC at the time she received the gift on her birthday (May 24), which was $3,000. Her capital gain is therefore $1,500 (i.e. $4,500 - $3,000)..
6. Staking rewards and airdrops
The ATO provides that any cryptocurrency received from staking or airdrops forms part of your taxable income and is subject to income tax. When declaring the earnings in your tax report, you will record the AUD value of the cryptocurrency on the date it was earned. When disposing of your asset, CGT will apply, and the cost base will be the fair market value of the cryptocurrency at the time it was derived.
Example: Bec receives an airdrop of 100 XLM on 14 March, which is worth $20 in total on this date (i.e. 1 XLM = $0.20). In her tax return, she records the $20 as part of her taxable income. In May, she sells 100 XLM for $30. Her capital gain is therefore $10 (i.e. $30 - $20) and Bec will need to pay CGT on this amount.
7. Mining
Whether you pay CGT or income tax on mining activities depends on whether you mine as a hobby or as a business. If you mine cryptocurrency as a hobby, CGT will apply when you dispose of the cryptocurrency. Your cost base will be zero.
Example: Mark mines bitcoin as a hobby and mined 0.5 BTC on 12 January. On that date, the fair market value of 0.5 BTC was $15,000. Two months later, Mark sells the BTC for $20,000. Because Mark mined the bitcoin, the fair market value of the BTC on the day he mined the BTC is irrelevant and his cost base is zero. His capital gain is therefore $20,000 and he will need to pay CGT on this amount.
If you mine cryptocurrency as a business, any cryptocurrency that you mine should be included in your taxable income and will be subject to income tax. Proceeds from any disposals also represent taxable income and therefore CGT cannot be relied upon. If you donât dispose of your cryptocurrency, you must still record the total change in the value of your portfolio at the end of the financial year. Any gains are treated as taxable income, while a decrease is treated as an allowable deduction. You may also be able to claim expenses, such as electricity and equipment cost, in your tax report.
Example: Elle mines bitcoin as a business and mined 0.5 BTC on 12 January. On that date, the fair market value of 0.5 BTC was $15,000. Elle recognises $15,000 of taxable income and declares it in her tax report.
8. Margin Trading and Derivatives
The ATO does not currently provide any clear guidance on what taxes apply to cryptocurrency margin trading, futures, options, or other types of derivatives. If you are an investor, a common conservative approach is to record any gains or losses from these trades as capital gains or losses as you would with spot trades. In this case, CGT will apply.
Example: Aaron margin trades as an investor and shorts bitcoin at $10,000 by selling 2 BTC using 4x leverage. His opening value is therefore $20,000. He closes his position a week later at $9,000 per BTC. His closing value is therefore $18,000. The 2 BTC Aaron originally borrowed to open his position is returned after closing the position. He reports his capital gain as $2,000 (i.e. $20,000 - $18,000) and pays CGT on this capital gain.
Capital Gains Exemptions
In some cases, you may not need to pay CGT when you dispose of your cryptocurrency, such as when you use cryptocurrency for personal use, make a cryptocurrency donation, or where your cryptocurrency is lost or stolen.
Personal Use Assets
If you use cryptocurrency to purchase goods or services for personal consumption, the cryptocurrency may be a personal use asset. The asset must be acquired for less than $10,000 and the cryptocurrency should be used to make a purchase within a short period of time.
The ATO specifies that a cryptocurrency is not a personal use asset if it is kept or used mainly as an investment, in a profit-making scheme, or in the course of carrying on a business.
For more information and examples, see the ATOâs guidance on personal use assets.
Donations
Donating cryptocurrency to a registered charity is not a taxable event. You may even claim the donation amount as a deduction on your tax return using the formula Capital Gain/Loss = Sale price - Cost base, where the sale price is the fair market value on the day of the donation.
For more information, see the ATOâs guidance on gifts and donations.
Lost or Stolen Cryptocurrency
In the event that you lose the private key used to access your cryptocurrency, or where your cryptocurrency is stolen, you may be able to claim a capital loss. The main determination that has to be made is whether the lost item can be replaced. If it can, then you cannot claim a capital loss. If it canât, such as when you lose your private key, then you may be able to claim a capital loss.
To claim a capital loss, the ATO will require you to provide evidence such as:
when you acquired and lost the private key
the wallet address that the private key relates to
the cost you incurred to acquire the lost or stolen cryptocurrency
the amount of cryptocurrency in the wallet at the time your private key was lost
that the wallet was controlled by you (for example, transactions linked to your identity)
that you are in possession of the hardware that stores the wallet
transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.
For more information, see the ATOâs guidance on lost or stolen cryptocurrency.
Tax Rates in 2021
If youâve determined that you need to pay CGT and calculated your capital gain/loss, you will be taxed according to your total taxable income.
If youâve made a capital loss, you will offset your capital loss against an existing capital gain or carry it forward and deduct it from capital gains in later income years.
If youâve made a capital gain, you will add this capital gain to your total taxable income and pay tax on the total amount in accordance with standard marginal rates.
The tax rates for Australian residents for the 2020-21 financial year are as follows:
Source: ATO
The following example puts together CGT, income tax, and the above tax rates in a scenario that a typical investor may encounter.
1. Todd buys 1 BTC for $10,000 (including trading fees) in December 2019. This is his cost base.
2. In January 2021, he sells his 1 BTC for $50,000. This is his sale price.
3. Using the formula Capital Gain/Loss = Sale price - Cost base, his total capital gain is $40,000 (i.e. $50,000 - $10,000).
4. Because Todd held the BTC for more than 12 months, he applies the CGT discount of 50% to his capital gain, resulting in a net capital gain of $20,000 (i.e. $40,000 x 0.5).
5. Todd works as a software developer and receives an annual salary of $79,000. He also earned 0.7 ETH from staking, which was paid out in full on the 2nd of February, 2021. On this date, the fair market value of 0.7 ETH was $1,000, which he records as taxable income.Â
6. After adding the capital gain from the sale of his BTC to his salary and staking earnings, Toddâs total taxable income adds up to $100,000 (i.e. $79,000 + $20,000 + $1,000).
7. Using the table above, his taxable income for the 2020-21 financial year falls into the third bracket, i.e. $45,001 â $120,000. Todd will therefore pay $5,092 plus 32.5 cents for each $1 over $45,000. Applying this tax rate to Toddâs taxable income, his total payable tax will be $22,967 ($5,092 + ($100,000-$45,000) x 0.325)).
For more information, see the ATOâs guidance on calculating CGT on cryptocurrencies.
Keeping Records
Whether youâre using cryptocurrency as an investment, for personal use, or in business, you must keep records of any and all cryptocurrency transactions that you make. The ATO stipulates that you must retain the following records:
the date of the transactions
the value of the cryptocurrency in Australian dollars at the time of the transaction
what the transaction was for (i.e. whether it was a gift, donation, for the purchase of goods, etc.)
who the other party was (even if itâs just their cryptocurrency address)
You should also keep the following records:
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
If youâre participating in margin trading, derivative trading, staking, or other activities on Binance Australia that are not spot trades, these transaction histories are each available for viewing and exporting separately under the âOrdersâ section of your account.
More Information
The information contained in this guide is aimed to provide a general overview of the tax obligations that you may have in a manner that (we think) is easier to follow than navigating dozens of ATO pages. While we endeavour to provide you with accurate information, please remember that weâre not tax experts and we encourage you to seek more information beyond this guide.
Itâs also important to bear in mind that the field of cryptocurrencies and the laws surrounding it are evolving rapidly. As such, the information in this guide may not reflect the latest information provided by the ATO or other relevant authorities.
For more information on your tax obligations:
visit the ATO website;
read the ATOâs tax treatment of cryptocurrencies;
see the cryptocurrency subcategory of the ATO Community;
submit an early engagement request with the ATO for advice on complex transactions; or
consult a financial or legal adviser.
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