Do you have to Pay Tax on Cryptocurrency in Australia?

If you have been trading cryptocurrencies for the past few years then it’s time that you start thinking about tax, no matter from which country you belong. When you are making a profit by trading cryptocurrency then you will have to declare it in the annual returns. Whether you are using platforms like news spy to trade bitcoin or any other platform, you cannot escape from taxes. With this in mind, when using cryptocurrencies, it is important to make cost-effective decisions to ensure that any investments are profitable. For example, researching the cheapest way to buy bitcoin before you spend your currency is strongly recommended. Ultimately, the more research that you can do, the better the chances that your investments will be successful.

The Australian taxation organization (ATO) has specified that if you wish to continue trading cryptocurrency, you must understand the laws regarding trading in the country. Keep reading this comprehensive guide to know the basics of cryptocurrency taxation rules in Australia. 

How is Cryptocurrency Taxed?

Let's start with the basics of how cryptocurrency is taxed. The profit that you make by buying and selling your cryptocurrencies is taxed in Australia. When you exchange your profit for other cryptocurrencies or purchase goods or services using fiat currencies, it is determined in AUD. 

For instance, if you buy 1 BTC when its value is $3000 and sell it when its value has risen to $10,000 then you have made a solid profit of $7000. The tax will be applicable on this $7000 when you spend or sell it.

In short, it is the outcome of your cryptocurrency trading i.e., profit or loss which gets taxed in the two ways mentioned below:

1. Business or professional - taxed as income

A cryptocurrency profit would be treated as a business or professional income when it is generated by the following course of activities:

• * Professional cryptocurrency trading 

• * Business-related transactions on cryptocurrency

• * Professional cryptocurrency trading

• * Operation of cryptocurrency-related to business 

There is a thin line between personal and business activities and sometimes it can be hard to distinguish. So, when should you consider cryptocurrency mining as a commercial operation?

ATO is responsible for assessing these situations and activities to judge and determine whether the transaction should be considered commercial or not.

2. Personal - taxed as an investment

If your cryptocurrency activities do not fall in the above category then your final profit and loss will be taxed as your earning. Thus, they will be taxed as capital gains. The activities that fall in this category are the following:

• * Buying cryptocurrency for yourself

• * Mining crypto as a hobby

• * Casually trading cryptocurrency

Capital Gain Tax

A capital gain tax (CGT) occurs in the case when you have been trading cryptocurrency under the category of personal earning as you can see above. It is applicable if you:

• * Gift or sell your cryptocurrency

• * Exchange or trade your cryptocurrency for fiat currency or other cryptocurrencies

• * Convert your cryptocurrency to fiat currency

• * Use your cryptocurrency to buy services or goods

The tax may apply to some or all of your capital gain when you dispose of your cryptocurrency. For a simple example, take the scenario in which you buy a cryptocurrency for investment. When you sell the virtual coins or trade them for a higher price, it will result in a capital gain. Hence, you are now prone to pay tax.

On the other hand, if you have a buy and hold strategy and you hold on to your coins for more than a year before trading or selling them, then you will have a 50% CGT discount. Thus, even if the market value of your virtual coins has changed, you won't be generating any capital loss or gain until you dispose of your holdings.

There is also a scenario of capital loss. If you have sold or exchanged your cryptocurrency for a price less than its cost value then you are in the category of capital loss. These capital losses can be used to reduce the capital gains that are made in the same financial year. It also includes investments outside cryptocurrency.  

Conclusion:

In the end, it is vital to mention the cases so you can be exempted from paying tax. If you have made capital gains of less than $10,000 then you are free from tax. Similarly, if you have used the cryptocurrency to purchase services or goods for personal use like hotel booking then no tax will be applicable. However, ATO has made it very clear that investment or profit-making schemes are not for personal use.