TSP offer some considerations and tax implications.

Cryptocurrency in the form of BitCoin began circulation approximately 10 years ago.  Since then thousands of currencies have hit the market, including “blockchain” technology, the infrastructure driving the currency ledgers themselves. 

What is cryptocurrency? 

Cryptocurrency is a digital or virtual currency. In some ways, it’s similar to a casino chip – you purchase with physical money and receive a ‘chip’ or in this case a ‘coin’ with a traded value. 

Some issues to consider: 

  1. Digital currencies can be quite volatile as there is no one central exchange but several across the globe.  Each exchange can move up or down according to the transactions on that particular exchange. 
  2. There is no fundamental backing by a central bank or government, increasing its potential risk. However, transactions can be more efficient as they happen virtually 24/7.
  3. The infrastructure supporting cryptocurrency transactions is ‘blockchain’ technology.  This is considered totally decentralised where there is no central hub for transaction storage, making cryptocurrencies more secure.  As there are multiple servers and drives across the globe, there is less potential for a major cyber attack on just one storage facility. 
  4. It’s important to note that cryptocurrencies have been banned in some countries eg: Ecuador and Morocco
  5. Cryptocurrencies are not deemed to be foreign currency as a foreign currency requires the backing of a government or major institution. Therefore gains or losses are not treated as foreign currency gains or losses.

What are the potential tax implications for you or your business of the if you wish to trade or invest in cryptocurrency?

The tax treatment will be dependent on the intention when the purchase is made. Tax is only an issue when the cryptocurrency is disposed of.

Do I need to pay Capital Gains Tax?

If your purchase intent is as an investment to turn a profit upon disposal of the currency then CGT may be payable upon disposal of the currency.  If the currency is held for longer than 12 months, then the 50% CGT discount will apply, effectively halving your tax. 

Will any profits be considered assessable income?

There are circumstances where profits from the sale of Cryptocurrency will be treated as assessable income and not subject to any discounts. Isolated transactions which have a commercial nature to them fall into this category.

What If I am Just using for my own Personal Use?

If you are using Cryptocurrency to purchase personal consumption items, such as music or clothes, then the Cryptocurrency will be deemed a Personal Use Asset. If your first element of the cost base (usually the purchase price) is less than $10,000 then any capital gains or losses will be disregarded.

Record Keeping

Record keeping is essential as you will need to demonstrate the intention behind each transaction when purchasing cryptocurrency.

Information required includes: 

  1. Date of each transaction
  2. Purpose of the transaction
  3. The identity of the other party to the transaction
  4. The value of the transaction in Australian Dollars at the time of the transaction. 

TSP Accountants & Business Advisors are here to assist with all your questions about cryptocurrency and your tax obligations. If you feel we can assist please get in touch 02 49 26 4155 or email admin@tspaccountants.com.au 

Further information on Cryptocurrency in Australia can be found on the ATO’s website.