Have you bought or sold cryptocurrency in the last financial year?
If so, it’s now time to start thinking about the impact this may have on your income tax return. If you have made a profit trading cryptocurrency, you’ll need to declare it in your annual return as the ATO has announced that it is specially targeting cryptocurrency traders.
Here are 3 important messages the ATO want traders to consider this tax time:
- Record Keeping – Everyone involved in acquiring or disposing of cryptocurrencies must keep records in relation to their cryptocurrency transactions – if you have transacted with a foreign cryptocurrency exchange you may have tax responsibilities in another country. When keeping records in relation to your cryptocurrency transactions you need to include: the date of the transactions; the value of the cryptocurrency in Australian dollars at the time of the transaction; and, what the transaction was for and who the other party was. Keeping good records will make it easier to calculate and meet your tax obligations, and if you are in business, they will assist you to manage your cash flow and see how your business is doing.
- Capital Gains Tax (CGT) – You will need to consider any capital gains you make on the disposal of cryptocurrency, some or all of the gain will be taxed. A disposal can occur when you: sell or gift cryptocurrency; trade or exchange cryptocurrency; convert cryptocurrency to fiat currency; or, use cryptocurrency to obtain goods or services. Some capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded. However, if the disposal is part of a business then the profits you make will be assessable as ordinary income and not as capital gain.
- Cryptocurrency used in business – If you are carrying on a business that involves transacting with cryptocurrency the trading stock rules apply, rather than the CGT rules. Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income, and the cost of acquiring cryptocurrency held as trading stock is deductible. If you are carrying on a business that is not a cryptocurrency business, but use cryptocurrency in your activities you need to account for cryptocurrency as you would for other assets or items use in your business.
Go to the ATO website to read more about what their current view of the income tax implications of common transactions involving cryptocurrency.
Alternatively, contact Lana and her team at Matovic Business Accountants at xero@matovicaccounting.com.au or call us on (07) 3557 5721.
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