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In the ever-growing digital world, we are continually being asked questions regarding the tax implications of investing, trading and mining in Cryptocurrency and Non-Fungible Tokens (NFT’s).
Trading in Cryptocurrency, such as Bitcoin (BTC), Ethereum (ETH), Ripple (XPR), Dogecoin (DOGE) or trading in Non-Fungible Tokens (NFT’s), is taxed the same as any other form of asset and needs to be reported on your annual tax return. Additionally, the ATO has released guidelines on the income tax implications outlining a number of examples relating to Cryptocurrency and the treatments upon sale. Below is a look at some of the key points.
Using Cryptocurrency for business transactions
Currently the ATO takes the view that transacting with any digital currency is the same as a barter type arrangement, and even though Cryptocurrency is not a recognised legal tender it is treated in the same way for taxation purposes.
Therefore, when you receive Cryptocurrency as a payment in exchange for goods or services, you are required to record the market value in Australian dollars as part of your taxable income. Similarly, where you purchase business items using Cryptocurrency, any deduction will be based on the market value of the item being purchased.
Cryptocurrency & Non-Fungible Tokens (NFT’s) as an Investment
Over the past few years, the popularity of NFT’s and Cryptocurrency such as Bitcoin and Dogecoin has skyrocketed with people chasing fast investment gains that are unprecedented in their returns. Your original intention on purchase and regularity of transacting is important in determining the tax treatment on any disposal or coin swap, with different tax regulations applying to your situation.
Where your intention is consistent with being a long-term investor, then your investment gains may be able to be taxed under the Capital Gains Tax legislation with the possibility of accessing the general 50% capital gains discount if holdings meet certain criteria.
However, where your transactions amount to a profit-making undertaking, such as Crypto mining, then the profits on disposal of the Cryptocurrency or NFT will likely be treated and taxed like any other business income and an Australian Business Number (ABN) may be required.
Cryptocurrency in personal transactions
When your Cryptocurrency and NFT trading is deemed to be carrying on an enterprise, but your dealings with Cryptocurrencies and NFT’s are seen as a hobby, then certain non-commercial loss rules may limit access to losses incurred.
Additionally, where the purchase is deemed a personal use asset there may be further tax exemptions or no tax implications for transacting in Cryptocurrency or NFT’s.
Contact the team at Stones Sharp to assist you with your Cryptocurrency and Non-Fungible Token trading and investing to ensure that you are paying the correct and minimal amount of tax on any trading, coin swap or mining.
I have had the Pleasure of dealing with Shane and the rest of the crew at Stones Sharp for a number of years now and can not fault them. They have always been professional and prompt to deal with, as well as giving me the best advice possible for my tax and other financial needs. Can not recommend the Team at Stones Sharp enough.
RyanStones Sharp Client