One in nine Australians have invested in Cryptocurrency this financial year. Here’s what you need to know to get your tax return correct and avoid scrutiny from the Australian Tax Office.
What needs to be reported
After you purchase Cryptocurrency any subsequent transaction will trigger a taxable transaction that you will need to take into consideration for your tax return. These transactions can either be:
- A swap to another coin, eg: Bitcoin to Etherium
- Selling the Cryptocurrency back to US or Australian Dollars
For many investors this means any trading within your Wallet will lead to tax consequences. As it is common for investors to undertake multiple swaps within their investment wallets, many investors will need to include some Cryptocurrency transactions in their income tax return.
Cryptocurrency transaction tip:
Don’t get bored and spend an afternoon sitting on your investment app swapping coins. Every one of those clicks is taxable!
My cryptocurrency portfolio crashed, do I still have to pay tax?
Short answer, yes.
You will pay tax on the Cryptocurrency profitable trades you make despite any subsequent decrease in the value of your portfolio. This is because tax is calculated on executed transactions and not the value of your investment.
If you didn’t sell any of your Cryptocurrency at a loss you cannot use a loss in portfolio value to offset any of the profit you have already made.
How will my tax be calculated?
The profit you make from your Cryptocurrency will be added to your taxable income and tax will be calculated at your marginal tax rate.
Where investors have traded a large amount of transactions it can be very difficult to calculate the profit using spreadsheets or traditional methods due to the complexity and amount of transactions. If this is the case we recommend using an online Crypto Tax Calculator. These calculators import the transactions from your Wallets and then matches the swaps and sales and determines the overall profit or loss made.
You can either prepare these reports yourself prior to your meeting or we can assist you as part of your tax return preparation. The provider we use at Finesse Tax & Business Advisory is Crypto Tax Calculator
Common Myth: You don’t pay tax until you withdraw from your wallet
Many investors have heard you don’t pay tax on your Cryptocurrency profits until you withdraw it from your Wallet. Whilst this is true for United States taxpayers it is not the case in Australia. In Australia you pay tax on your transactions not your withdrawals. As an Australian Tax Resident this applies whether your wallet is held in an Australian or US Cryptocurrency exchange.
Don’t risk an Australian Tax Office Audit
With so many Australians investing in Cryptocurrency the Australian Tax Office is investing significant resources into ensuring these investments are being reported correctly. We are expecting lots of audits in relation to Cryptocurrency.
Here at Finesse Tax & Business Advisory we can help you calculate your Cryptocurrency profits or losses and make sure you aren’t paying more tax than you need to. We can also help with tax planning and advising on the tax implications of your portfolio.
If you have already lodged your 2022 tax return and think you may have made a mistake it’s not too late to correct it. Simply get in touch and we can review the information for you.