I've sold some cryptocurrency during the 2021 income year. Do I have to pay tax on the sale of my cryptocurrency, and should it be declared in my tax return?
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With the growth of cryptocurrencies as an investment choice, it is important you carefully consider the tax impact of trading and investing in these products when preparing your tax return.
Individuals transacting with cryptocurrency may incur tax liabilities in the form of income tax or capital gains tax. The type of tax payable and the amount of tax payable will depend on the nature of the transaction.
If you make a profit on selling your cryptocurrencies in the course of business activities, the profit may be treated and included in your assessable income, making it subject to income tax.
Examples of business activities may include commercial cryptocurrency mining, professional cryptocurrency trading, operating a cryptocurrency-related businesses or business-related cryptocurrency transactions.
If your cryptocurrency activities do not fit into the above category, the resulting profits will most likely be considered capital gains and will be subject to capital gains taxes instead.
Activities that may be considered capital gains include buying or selling cryptocurrency, mining cryptocurrency as a hobby or casually trading.
Cryptocurrency that is held for more than a year before selling or trading, may be entitled to a 50 per cent discount, which would reduce the amount of tax you pay by half.
But cryptocurrencies that are sold for less than what they were bought will attract a capital loss. Capital losses are not taxable and will be used to reduce any other or future capital gains.
Cryptocurrencies used to purchase goods or services up to $10,000 in value for personal use, such as shopping at retailers, will be exempt from capital gains tax.
Record keeping is important for your cryptocurrency transactions.
To help calculate and meet your tax obligations, you should keep the following records: date of transactions, Australian dollar value of cryptocurrency transactions, reason for the transaction and the recipient of the transaction.
Contact your tax adviser or the Findex team at albury@findex.com.au to learn more about the impacts of selling your cryptocurrencies when preparing your tax return.
