Tax clarity is gradually coming to Australian crypto holders
Cryptocurrency is going from a tax nightmare to business as usual.
After hitting the limelight in 2017, cryptocurrencies have left tax agencies around the world scratching their heads, with crypto traders being left similarly puzzled.
Australia is no exception, but the ATO has been moving quickly, establishing a task force to crack down on tax evasion via crypto. The ATO has been giving ongoing guidance for accountants and crypto buyers, periodically consolidating the guidelines in line with feedback, and then further clarifying it.
With tax time upon Australia, the most recent dose of clarification arrived on 6 July to include guidance on loss or theft of cryptocurrency, and the tax implications of forks, or chain splits as the ATO calls them.
What kind of crypto-er are you?
When, how and why do you crypto? The answer might affect your tax obligations.
"We currently believe the value, and therefore the largest potential risk to revenue, is confined to a few individuals," said ATO acting deputy commissioner Martin Jacobs to the Australian Financial Review (AFR). "Our feeling is that the vast majority of investors who joined the bubble in 2017 are likely to be in the loss position as opposed to a gain. The other assumption is they probably haven't disposed of their cryptocurrency. They might just be holding it."
In those cases there won't be any tax implications, the AFR says.
For others, it might be more dependent on why they first acquired cryptocurrency. As a broad rule of thumb, cryptocurrency profits are intended to be taxed as capital gains, but some people may be able to seek personal use exemptions.
AFR Weekend spoke to someone who acquired $600 worth of Ethereum in 2014, which has since appreciated to around $2 million, who is seeking a private binding ruling and aiming for a personal use exemption.
"Many early adopters mined and acquired cryptocurrency out of a genuine personal interest," said Sladen Legal associate Laura Spencer. "For people who've bought in the last year it will be much harder to argue personal use. You've got to be able show you had no commercial intention whatsoever."
Beyond that, there are also myriad grey areas with cryptocurrency being used for business purposes, traded like shares, mined rather than bought, subject to long term investment capital gains discounts and more.
"It's a minefield," Spencer said.
Fortunately many tax accountants around Australia are just as caught up in cryptocurrency, and working to get around the ATO's updating guidelines.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, NANO