Pat: Hey, it’s Pat Mannix here from Paris Financial. A little business starting to take off more these days is cryptocurrencies. They’ve been ’round for a few years. In fact, one of our partners in our Mornington practice of Paris Group, is Andrew Bragg, who is a bit of a guru on Cryptotax and has a whole website. We surround ourselves with crypto. And actually, he’s right here now. Welcome Andrew.
Andrew: Thanks, Pat.
Pat: So how long you been involved in crypto, mate?
Andrew: Yeah, we’ve been in this sort of space now four or five years, helping our small businesses, our individual investors and things, understanding their requirements that they need to report back to the ATO with regards to their crypto investments. It’s been a wonderful journey to date, it’s been great.
Pat: So Andrew’s been dealing with a heap of clients through Bitcoin and all sorts of cryptocurrencies. But being small business and in tax, we concentrate on that. So I suppose the basic question, Andrew, is investor versus trader? That seems to be the big tax question. How do you answer that one?
Andrew: Very good question. Everyone’s very different, and it all comes down to the intent of the taxpayer, really, at the end of the day. If you’re an investor, it’s basically a capital gains event. Which means when you buy and sell cryptos, when you actually dispose of the cryptocurrency, even if you swap it, you don’t necessarily need to cash it back out into Australian dollars, if you swap from one cryptocurrency to another, that’s a disposal of the coin. That triggers a capital gain event, so therefore you’ve gotta declare that on your tax return at the end of the year. So that becomes a capital gain. You’ve got to add that to your other income for the year. Then you pay tax on that at your marginal rate, so you add that to your other income for the year.
Pat: What about those little tech geeks out there who are trading every day and spending a lot of time and how are they get handled?
Andrew: Yes, they potentially could be seen as a trader so they’re carrying on an enterprise. And you actually need to have an ABN, ’cause you’re carrying on an enterprise there. So therefore that is actually on revenue account, not capital account. So it’s not a capital gain, it’s normal income. Again, with normal income you add that to your other income for the year, where you get income from other external sources. You add all that into your tax return at the end of the year and you pay tax on that. The difference between, really, a trader and an investor is actually if you lose money on your investments during the year. If you’re an investor, it’s a capital loss. You can’t actually claim that capital loss against your other income for the year. You can only offset capital losses against future capital gains.
Pat: Okay, I understand mate. I suppose, leading on from that, when we’re talking about losses, trading, and investing, is what sort of structures should cryptocurrency investors and traders use? What sort of tax structures?
Andrew: Especially in a bull market, I mean, obviously people are investing in this space and things that ’cause they want to make money. A lot of high wealth individuals are actually investing in this space and that’s not always. If they’re investing in their own name, they’re paying tax on those gains in their own name, and potentially at the highest marginal tax rate.
Pat: Okay, so what about trusts? We love trusts at Paris Financial. Would anyone look at going into a trust?
Andrew: Absolutely, trusts are certainly a way to go with regards to investing cryptocurrencies. For the very fact that you can actually, if you invest in trusts and things that, any profits and things you make out of the trusts and things that, can be distributed to other family members within the trust. So it keeps it away from potentially that high wealth individual, and it pays tax at a lower marginal rate. Or potentially no tax at all if it’s done correctly.
Pat: Okay, fantastic, mate. Look, they’re the basics about tax for cryptocurrencies. Where can we get hold of you, mate? What’s our website there for Cryptotax?
Pat: He’s the man, come and talk to him about crypto.
Andrew: Look forward to speaking to you shortly.
Pat: See you soon.