Tax time 2023: How your crypto assets factor into your tax return lodging
Tax season's creeping up around the corner – and if you hold crypto assets, you need to know what your obligations are.
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Since Bitcoin launched all the way back in 2009, cryptocurrency has enjoyed a steady flow of media interest.
But over the last few years, there's definitely been a shift in tone. There's been more positive media attention, and in turn a higher public profile and greater interest from traditional investors.
This has also meant considerable interest from governmental authorities – like the ATO!
So with tax time just around the corner, we've put this primer together on the essential things you need to know. This way, you'll have a much easier time talking to the taxman.
Keeping track of transactions
When it comes to crypto, one of the big challenges can be simply keeping track of all of your transactions.
These challenges can be compounded further pretty quickly, as the ATO looks at your crypto assets on an individual basis, rather than holistically.
If you've been buying, selling and trading extensively over the last financial year, it's entirely possible that you don't have an easy-to-access record at hand.
The good news is that there is software out there that can help – you don't need to manually track everything you do in a spreadsheet.
Crypto Tax Calculator allows you to generate accountant-ready reports from your crypto holdings. Crypto Tax Calculator allows you to automatically import a huge range of wallets, exchanges and blockchains, automatically categorising your transactions for tax purposes.
It then compiles this information into a centralised report, allowing you to have a much more streamlined process at tax time.
Before October 31 2023, you can also get an exclusive discount of 30% off your first tax report from Crypto Tax Calculator by using the code FINDER23.
Income tax doesn't tend to be a primary concern for crypto holdings. Most of Australia's legislation around it is centred on capital gains tax (more on that in a moment).
However, certain transactions like staking, yields and airdropping may be treated as income for the purposes of reporting.
Tools like Crypto Tax Calculator allow you to easily sort not only your crypto transactions, but what type of transactions have taken place.
This way you're able to easily identify which transactions won't attract tax (e.g. purchasing) while highlighting those that might (e.g. selling, staking).
Capital gains and losses
Capital gains taxes have – perhaps unsurprisingly – been waiting in the wings ever since crypto showed its potential for rapid gains.
When you sell crypto, you generally make a loss or a gain depending on the initial purchase price you paid. If the gain is significant, you may be required to pay capital gains tax on the difference you've earned.
However, if you've held the asset for more than 12 months, you may be able to apply for a discount on the tax.
All gains and losses should be reported as with any other type of asset (e.g. shares, bonds, cash).
Crypto Tax Calculator enables you to calculate gains and losses rapidly, then provide the relevant report to your accountant.
The good news about crypto and tax is that you may also be eligible for deductions.
If you're an active trader running your own business – rather than a traditional investor – you may be able to claim the cost of acquiring crypto as part of your business.
This works in a similar fashion to other business expenses, such as purchasing new software or equipment to help you with your job.
Losses on crypto – whether you're an investor or trader – you can also potentially offset future capital gains taxes too. This means you can use past losses to help reduce future tax bills. So don't forget to report your losses – even if they're a bit embarrassing.
However, this can only be claimed once you've divested yourself of the asset. You won't be able to claim anything if one (or more) of your assets have simply declined in value over the last financial year.
Just because you have crypto on a foreign-operated exchange doesn't mean that you're exempt from tax.
As far as the ATO is concerned, any crypto assets owned – whether held on a foreign exchange or a local one – is still subject to Australian tax.
We can't stress it enough – make sure you're honest and upfront in disclosing your crypto assets and transactions.
It's a common misconception that crypto is "untraceable", but this isn't the case at all. The ATO can, and does, track crypto transactions.
If you're not disclosing your holdings, you're setting yourself up for an audit, or a range of other penalties.
Working with the right professionals
Of course, you don't have to work through the whole process alone.
Working with a crypto-savvy accountant can be a huge boon, as they'll be up to speed on the latest legislation. They'll also be aware of what the ATO is looking for, and be able to provide you with advice accordingly.
Additionally, reporting software like Crypto Tax Calculator can make the process substantially easier. It's much more straightforward than manually tracking every trade or trying to keep paper records.
Before you start working on your tax for this financial year, make sure that you take some time to look at the professionals you're working with and the tools you're using.
If it's time to upgrade, better to get ahead of it this year, rather than waiting till next tax season.
A final word: Why paying attention to tax on crypto assets matters
There's no question that tax has been a contentious issue for many in the crypto space.
After all, many crypto investors and enthusiasts adhere to a futurist, libertarian or privacy advocate viewpoint – often a blend of all three. The goal for many has been to avoid traditional finance systems and create something that avoids the issues of the current set-up.
This is understandable in principle. But there's definitely been a disconnect in real-world application.
Even a cursory glance at the history of crypto reveals a need for greater consumer and investor protections. Hacking, theft, money laundering, exchanges collapsing and more have all dogged cryptocurrencies in the decade-plus of their existence.
Regulation and oversight are part of discouraging these behaviours – and tax becomes involved almost by default.
However, in the long term it adds greater respectability – and longevity – to the investment class as a whole.