Cryptocurrency has been the term on everyone’s mind lately, the ATO is figuring out how to be sure that investors and traders aren’t dodging their taxation responsibilities.

Cryptocurrency, the most well-known being Bitcoin, is a digital currency that uses cryptography as security. Cryptocurrencies were created with the purpose of becoming an alternative currency. However, the digital currency is not presently being regulated by national governments.

The tax action for trading in Bitcoin or other cryptocurrencies varies significantly depending on the purpose behind the transaction. As a personal investment, trading crypto-currency may attract capital gains tax upon sale.

Then again, mining coins results in generating assessable income for the taxpayer.

The ATO’s view

Cryptocurrency is neither money nor foreign currency, and from the 1st July 2017, the ATO stated that it is not a financial source for GST purposes.

Capital Gains Tax for Investors

If a taxpayer is trading cryptocurrencies they will require to retain the related dates of the transactions, the rate in Australian dollars, what the transaction was for and who the other party was.

Mining has also been looked at by the ATO. Mining is when the taxpayer is trading cryptocurrencies between third parties.

Tax treatment resulting from Mining: Any income made from transferring mined coins/tokens to a third party will be counted in in the taxpayer’s assessable income. The ATO will assess any earnings that resulted from the sale of coins/tokens, less any permissible deductions for losses made. Under this structure, cryptocurrency held by the taxpayer will be perceived as trading stock rather than a CGT asset.

Self Managed Super Funds (SMSF)

SMSF’s may invest in cryptocurrency if the investment is permitted under the trust deed. The investment is also required to be in accordance with the fund’s specific investment strategy. The ATO states that SMSF cryptocurrency investments must be separate from personal or business investments for both the trustees and members.

The ATO released an article that details the tax treatment of cryptocurrency which can be found via the link below:

https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia—specifically-bitcoin/

For more information on how to handle the tax related to your cryptocurrencies, why not chat to one of our Team?