The ATO and your Crypto

The popularity of investing in cryptocurrencies has taken off over the last few years and whether you dabble in a little Bitcoin on the side or you’re a serious investor doing day trading of leveraged perpetual positions, there are likely tax consequences.

The question is, do you know what those tax implications are?

At the most simplistic level, as soon as you exchange Australian dollars (fiat currency) for a cryptocurrency (eg Bitcoin, Solana, Ripple) you are ‘purchasing’ an asset. After some time you decide to ‘sell’ your crypto by converting it back to Australian dollars. Like buying and selling any other assets in Australia, you are most likely going to be subject to capital gains tax. Your capital gain (or loss) is calculated by the amount you sell your asset for less the amount you paid for it.

Example

You exchange $10,000 for 0.1 Bitcoin. After 6 months, you exchange your 0.1 Bitcoin for $15,000 giving you a gain of $5,000 ($15,000 - $10,000). You would need to declare this in your tax return and ultimately pay tax on the $5,000 profit you have made.

You may be thinking that’s all well and good but this is just beginner level investing in crypto, what I do is much more complex. Well lets run through some of those more complex scenarios.

Trading in non-fiat currency

Many crypto exchanges require you to convert your fiat currency into a stablecoin (eg USDT, USDC)  before you can start trading. Generally speaking the transfer of fiat currency to and from the exchanges default stablecoin will not be considered a taxable event. Once you have converted your Australian dollars to a stablecoin, you start trading.

Example – Spot trading

You’ve converted $10,000 AUD for $6,500 USDT. You then ‘purchase’ 3,000 Ripple for $6,500 USDT and then sell your 3,000 Ripple a few days later for $7,000 USDT which gives you a gain of $500 USDT ($7,000 - $6,500). You would have to declare this in your tax return even if you don’t exchange the USDT back to Australian dollars and/or take the funds out of your account. You would also need to convert the $500 USDT into Australian dollars to go in your tax return.

Example – Derivative trading

You enter into a leveraged perpetual position to short sell Cardano. The price of Cardano drops and you close your position resulting in a profit of $1,000 USDT. Regardless of if you withdraw this money from your account and/or convert it back to Australian dollars, you need to declare this profit in your tax return.

Common crypto activities that are likely taxable income

There are several common crypto transactions that are automatically treated as income rather than a potential capital gains event.

These events include (but are not limited to:

• Staking Rewards – This will usually be treated as income to be declared in your tax return

• Airdrops – Depending on whether it’s an initial drop of a token or not. An initial drop may not be treated as income immediately and instead contribute to a future capital gains event

  
  

But I hear you say, the ATO can’t track my crypto so why should I declare it on my tax return?

Regardless of if the ATO can track your crypto trading, as long as you’re an Australian resident for tax purposes, you are legally required to declare it in your Australian tax return. And yes, the ATO may not be able to track your trading activities when it’s not in fiat currency (ie Australian dollars) particularly on decentralised exchanges, the ATO does have access to bank account transactions. So unless you are paying for your living expenses using crypto, you are probably going to ultimately transfer your crypto to an exchange where you can make a fiat withdrawal in Australian dollars to an Australian bank account and the ATO will have visibility of this.

Additionally, many exchanges (centralised exchanges at least) ask for personal identification to open a wallet which may be another means the ATO could use to track your crypto.

Importance of keeping track of your wallets

Like many others you might have set up a wallet for a specific reason, transferred some crypto and forgotten about it. This could impact the amount of tax you may have to pay on any income or capital gain.

Example – Transferring between wallets

You have two wallets on Ethereum and you transfer USDT from Wallet A to Wallet B. You’ve lost the details for Wallet A so you can only see the transactions in Wallet B. As Wallet B only has the transfer of USDT coming in without being able to see the transfer of USDT leaving Wallet A, you may be taxed on the transfer in to Wallet B as if it was income as there’s no corresponding transfer out. This is why it’s important to keep track of your wallets.

Exchange Rates

Given you are doing an Australian tax return you are naturally required to report in Australian dollars but with so much trading done against a stablecoin or indeed another cryptocurrency, how do you know what rate to use?

There’s no set rule for this but a couple of options may be:

• The easiest is if you have transacted in a stablecoin effectively pegged to the USD (eg USDT or USDC) you can simply use the exchange rate used on the ATO website for USD to AUD.

• You could convert your cryptocurrency to the relevant AUD value using the closing price for the day you transacted (this would be time consuming for a lot of transactions)

Remember this can get complicated particularly if you haven’t been trading in a stablecoin. For example, you traded on the Ethereum chain in Ethereum so you would then potentially need to convert your Ethereum to USD to AUD.

Available software

There are some software options available whereby you can connect your various wallets and have the transactions allocated, converted to AUD and your tax estimate calculated for you.

The best software for this is Summ (formerly Crypto Tax Calculator) and should suit the majority of traders. You do need to make sure your transactions are categorised correctly and all of your wallets are connected. There are some wallets and exchanges (eg Bybit) that may not work perfectly and need to be looked at separately.

📞 Call us on 0451 040 656 or email info@streamlinedaccountants.com.au to book a free consultation and get your crypto tax obligations right.