Bitcoin and crypto tax tips for beginners in Australia
Crypto tax confusion: The tools to help save time and money.
Sponsored by Koinly - Make Crypto Less Taxing. Koinly is a crypto tax tool with over 700+ integrations across the top crypto exchanges, wallets and blockchains. Koinly generates reports consistent with ATO guidance, incorporating all your crypto trades, staking, airdrops, and NFTs.
Use code FINDERYT22 for 30% off your first tax report! T&Cs apply.
Sponsored by Koinly - Make Crypto Less Taxing. Koinly is a crypto tax tool with over 700+ integrations across the top crypto exchanges, wallets and blockchains. Koinly generates reports consistent with ATO guidance, incorporating all your crypto trades, staking, airdrops, and NFTs.
Use code FINDERYT22 for 30% off your first tax report! T&Cs apply.
We've all heard it before. There are only 2 things certain in life: death and taxes. Crypto tax is no exception.
Australian crypto exchanges have a legal obligation to report all customer information and transactions directly to the ATO.
While crypto tax can be a confusing and often overlooked subject, it is an important subject to understand.
But don't worry, we've done the research to help get your head around the world of crypto tax. This guide contains key points on how it works, what your obligations are and how you can potentially save some money come tax time.
You will need to pay tax – sorry
Remember when you set up your crypto exchange account and completed the KYC verification process? Well, the ATO likely already has your data and trade history.
While this may seem like it's contradictory to the decentralised and pseudonymous nature of crypto, it's actually not. Danny Talwar, head of tax at Koinly, explains.
"Blockchains are inherently traceable and the ATO has data matching programs in place with Australian crypto exchanges. The ATO can obtain information from exchanges and reconcile this with the information you disclose in your tax return."
Basically, all information stored on the blockchain is publicly available for anyone to see, not just the ATO. The crypto investments listed in your tax return can be compared to the information publicly available on the blockchain – and it's worth noting, the ATO has a knack for picking up on discrepancies.
HODLer discounts
As far as the tax office is concerned, Bitcoin and other cryptos (including stablecoins and NFTs) aren't considered money or foregin currency. Instead, they are classed as property.
Being classed as property puts cryptos in the same bracket as shares, collectibles and real estate, making them subject to capital gains tax (CGT). Every time you buy, sell or swap digital assets, it is considered a CGT event.
CGT is added to your taxable income and is charged at your individual tax rate. Keep in mind, if you made substantial gains on your cryptos throughout the year, these profits have the potential to push you to a higher salary tax bracket.
However, there is an upside for HODLers. Holding your crypto assets for longer than 12 months means that you're eligible to claim a 50% CGT discount on any gains.
Let's say you bought a fancy new NFT during a dip in the market and sold for a profit of $2,000 a year later – you're now eligible to utilise the long-term capital gains discount and only income pay tax on $1,000 of those gains.
Cryptos in the red? There might be a silver lining
All too often we hear about people making millions in the cryptosphere – yachts, mansions and luxury cars. However, for the majority of investors, this is not a reality.
Investing in cryptocurrencies is inherently risky. They have proven to be unexpectedly volatile and can quickly catch you offside and out of pocket. So what happens if you decide to pull the pin and sell your digital assets for a loss?
According to Talwar, there might be a silver lining to realising a loss on your cryptos come tax time.
"For investors, losses realised during the tax year can be carried forward against any future gains - a handy way to save on your tax bill."
Perhaps you lost some money investing in crypto in 2021 and decided it wasn't for you. 3 years later the housing market is looking up and you decide it's a great time to sell. You can potentially use those crypto losses from 2021 to offset some of the gains made on your house and cut down your CGT.
Although losses do have to be accounted for at the first available opportunity, there's no limit on how long you can carry forward your capital loss. Capital losses can not be deducted from regular salaried earnings.
Read more: Koinly's Ultimate Australia Crypto Tax Guide 2022
It all counts as income
Much like the internet, crypto is a broad space and encompasses many subsectors. There are traditional cryptocurrencies like Bitcoin and Ethereum, as well as earning opportunities including staking, lending and airdrops – the list goes on.
So where do these crypto niches and yield-earning opportunities fit into the tax equation?
Unfortunately, there is no escape. Tax is applicable to all transactions across the digital asset and currency market.
Although it can seem overwhelming, there are guides available to help you dissect the intricacies of crypto tax.
[Sponsored]
Use code FINDERYT22 for 30% off your first tax report!
New customers only. T&Cs apply.
You can make life easy and automate it with software
So, now we have a good idea about how crypto tax is calculated. But one question remains. How do I go about filing crypto transactions as part of my next tax return?
Thankfully, there is software available that can help all Australians create a crypto tax report in as little as 20 minutes. Talwar helped to explain how this is achieved.
He made the point that most investors don't have just 1 or 2 trades to account for, but often a lot more. While it is easy to rack up a large number of trades, it is also important to properly record your transactions and know what your tax obligations are.
Koinly aims to simplify the crypto tax process. By linking your exchange accounts via an API or connecting to your public wallet address, you're able to quickly import all relevant trading and transfer information across 700+ supported exchanges, blockchains and crypto wallets – directly into Koinly's tax software.
Once imported, Koinly aggregates this information and lets you track your portfolio and preview your capital gains or losses across any tax year.
Before filing your return, you can choose to integrate Koinly's crypto tax information with a third-party tax software or share the information with your personal accountant.
Summary
Tax time is always stressful, especially when there's crypto involved. But with the right tools and information, it's a lot easier to navigate and can save you many headaches and late nights counting numbers.
If you're unsure about anything crypto tax related, it is advised to talk to your personal accountant or the ATO. Additional information and crypto tax guides can be found via the Koinly website or through its customer support page.
Disclosure: The author owns a range of cryptocurrencies at the time of writing
Track your crypto taxes with Koinly
Compare other cryptocurrency tax software here
The ATO and crypto: Where is the Australian government headed?
SPONSORED: This article explores the government's initiatives to keep pace with decentralised technologies and a digital economy.
Read more…
Block Climbing Podcast: Australian crypto taxes explained
We take a closer look at Australian crypto tax with Danny Talwar from Koinly. We also check out the new metaverse Frida Kahlo exhibition.
Read more…
Block Climbing Podcast: How’s Australia’s Crypto Regulations Going?
This week we chat to Lisa Wade, CEO of DigitalX, about where crypto regulation is currently at in Australia. We also take a look at the fascinating concept of decentralised identity and how it might be applied in the future.
Read more…
Block Climbing Podcast: Crypto Wallets Explained
This week we get into crypto wallets and the difference between hot, cold and paper storage. Tim also buys one of those reddit NFTs.
Read more…