With everyone jumping on the crypto currency flight to the moon, it’s easy to forget about the potential tax implications and consequences that it can cause.
Did you know that buying and selling crypto may cause a significant tax event in which you can lose a huge amount of any gain to tax? We published this blog to address the lack of awareness of the tax obligations associated with crypto currency brought about by its complex nature.
Crypto operates independently from a central bank or government. The rapidly evolving crypto market has increased significantly, as has their activity. However, there are a lot of issues and misperceptions revolving around crypto. For example, you might think that your “crypto wallet” is completely private and your confidential details can’t be accessed by anyone. But government organisations, including the Australian Taxation Office (ATO), can and do access this information via data matching. Your crypto transactions can also be traced by AUSTRAC.
Though crypto currency can be considered as a CGT asset, crypto is not yet acknowledged as a currency up to now, and the ATO has also yet to provide a comprehensive definition of crypto.
Crypto is an asset and can attract capital gains tax. However, if you are carrying on a business of crypto trading, your tax structure should be reviewed to initially determine if your crypto business structure is the best for your circumstances, and whether or not your business being carried on crypto can be considered as trading stock.
A disposal of crypto resulting in a capital gains tax event does include:
- Selling crypto;
- Gifting crypto;
- Trade or exchange crypto;
- Convert crypto into a currency; or
- Unitising crypto to obtain goods or services.
To assist in determining how the crypto is being utilised as well as the tax obligations associated with it, you must keep all records involving your dealings with crypto currency. This is actually an obligation imposed by the ATO in relation to crypto.
In dealing with crypto currency, be cautious of the traps stated below including ones that do relate to crypto trading such as selling houses for crypto and self-managed superannuation funds (SMSF).
For home sellers: If a property is settled for proceeds paid in bitcoin, capital gains tax is payable on the sale of the property if not an exempt gain.
For SMSF: If a SMSF trades or holds crypto, the issue with the crypto wallet is that it will not have the SMSF in its title. Since ownership is fundamental for SMSF compliance, the pseudonymous design of crypto currency can create difficulties with SMSF compliance, separation of assets and audit. Apart from that, your SMSF trust deed should also allow investing in crypto.
If you would like to have an informative discussion about your crypto transactions as well as your structure in relation to crypto trading, contact us today to know how we can assist you.