Do I Pay Crypto Tax in Australia?

Do I Pay Taxes on Cryptocurrencies in Australia?

The simple answer is yes, you’ll need to pay taxes on cryptocurrencies in Australia. As mentioned above, depending on your specific circumstances, you’ll either pay income tax or capital gains tax. It’s, therefore, crucial that, when you trade with or invest in cryptocurrencies, you are aware of the tax implications.

How Does Australia Tax Traders and Investors?

Another important aspect we must consider is the distinction between traders and investors. This is simply because the ATO has different rules and taxes investors and traders differently.

According to the ATO, an investor is someone that invests in cryptocurrencies in order to generate long-term returns. So, similar to stocks, bonds, and other securities, as an investor, you’ll buy a specific cryptocurrency, hold it, and then sell it for a profit later. In these cases, you’ll be liable to pay capital gains tax on the profits that you generate.

Conversely, the ATO views those persons who operate a business and generate an income from cryptocurrencies as traders. This, for instance, includes crypto trading businesses, crypto mining businesses, and crypto exchange businesses.

It can also include other businesses that get paid with cryptocurrencies and those traders that make a living with trading by frequently buying and selling to capitalize on price movements. In all these cases, these traders will be liable for income tax on their earnings.

Crypto Capital Gain Tax Explained

Similar to our real estate example above, the ATO views cryptocurrency as an asset and you’ll be liable for capital gains tax when you dispose of your cryptocurrencies.

When you dispose of a cryptocurrency by, for instance, selling or exchanging it, you’ll need to calculate your capital gains tax. To do this, you’ll need to determine both the purchase and sales value of the cryptocurrency you’ve disposed of in Australian dollars.

A capital gain is then the difference between the cost base and your capital proceeds. Your cost base is the purchase price of the cryptocurrency including certain associated costs you’ve incurred to purchase, hold, and sell the cryptocurrency. The capital proceeds is the amount you received when you sold or exchanged the cryptocurrency.

Let’s look at an example to illustrate this better. Let’s say, for example, you buy Bitcoin to the value of AUD 1,000 and you sell it for AUD 2,000 later. During the purchase, sale, and when holding the Bitcoin, you’ve also incurred commissions and other costs in the amount of AUD 150. Your capital proceeds will then be AUD 850.

To calculate how much capital gains tax you’ll pay on the capital gains you’ve earned, you first need to look at what your marginal tax rate is as capital gains are taxed at the same rate as income tax. In other words, you need to look at the tax rate you pay on your total income during the tax year.

Currently, the tax rates are:

When you thus earn an income of $40,000 and you’ve earned capital gains of $10,000, you’ll pay tax on a total amount of $50,000. You’ll thus pay tax in the amount of $6717.

Now, what happens when you sell a cryptocurrency and your cost base is more than the capital proceeds? In other words, what happens when you sell your cryptocurrency for a loss? In this case, you’ll be able to deduct the loss from any other capital gains you’ve earned and you’ll also be able to carry the loss over to future years.

Can I take advantage of tax breaks?

Apart from the non-taxable maximum or tax-free threshold, there are several other tax breaks you can take advantage of when it comes to cryptocurrencies. These include:

Personal use assets and cryptocurrency

When you dispose of a cryptocurrency that is a personal use asset, you may disregard it from your tax calculations. According to the ATO, cryptocurrency is a personal use asset if you keep and use it mainly to buy items for personal use or consumption. The problem is that it could be challenging to determine whether cryptocurrency is a personal use asset. Generally, though, when you buy cryptocurrencies for short periods of time to use it or buy personal items, it’s more than likely a personal use asset. Conversely, if you buy cryptocurrencies and hold on to them for longer while only spending small amounts, it’s more than likely an investment and will not qualify for this exemption.

Capital gains tax discount

Apart from the exclusion relating to personal use assets, you can also qualify for a 50% discount on capital gains tax. Here, the main requirement for an asset to qualify for the discount is that you should’ve owned it for at least 12 months. Another requirement is that you should be an Australian resident for tax purposes.

Your Crypto Trading Model and Taxes

From the above, it’s clear that the strategy you employ when trading with cryptocurrency will have a significant impact on the taxes you’ll be liable for. If you invest in cryptocurrencies or, in other words, buy and hold crypto to generate returns, you’ll qualify as an investor which, in turn, means that you’ll be liable for capital gains tax.

Conversely, if you use a strategy where you buy and sell cryptocurrencies in the short term in order to take advantage of the fluctuations in the price, you’ll likely qualify as a trader which, in turn, means you’ll be liable for income tax. Also, if you run a business and you earn cryptocurrencies, you’ll be liable for income tax.

It’s important to keep in mind that the waters between these two strategies can get muddied in some cases and it can get challenging to determine what tax you’ll be liable for. It’s therefore vital that you understand how tax on crypto works in Australia and what the tax implications are for your specific strategy.

Best Crypto Exchanges in Australia

Now that we’ve looked at the different types of tax you could be liable for when trading with cryptocurrencies, let’s look at some of the best crypto exchanges in Australia.

The choice of exchange is often one of the first choices you’ll need to make when you want to start trading with or investing in cryptocurrencies, so you’ll need to consider several aspects to choose the right one, including how many assets it has available, its fees, and the exchange’s features. If you choose a crypto exchange with low fees, your trades will be more profitable.

Coinbase

Coinbase Review Open an Account

Established in 2012, Coinbase has grown to become one of the most popular cryptocurrency exchanges in the world. In fact, it has grown to such an extent that it is now the largest cryptocurrency exchange in the United States, and it was listed on the Nasdaq stock exchange during January 2023.

Coinbase currently serves over 73 million verified users from over 100 countries around the globe and gives you access to all the major cryptocurrencies including Bitcoin, Ethereum, Solana, Cardano, and many others.

As far as protection measures go, Coinbase stores the majority of the crypto assets on the platform in secure offline wallets and it follows industry security best practices to ensure that clients’ funds stay safe.

A unique feature of the platform is that it gives you the ability to learn more about a certain cryptocurrency and, in return, earn rewards in the specific cryptocurrency. For example, to learn more about Stellar Lumens (XLM), you’ll complete a short course about it and then earn 10 XLM on completion of the course.

Binance

Binance Review Open an Account

Founded in 2017, Binance has grown substantially over the last few years and it’s now the largest cryptocurrency exchange in the world. As such, the platform has impressive average daily volume numbers and about 1.4 million transactions are executed on the platform per second.

A major benefit of the Binance platform is the sheer number of cryptocurrencies and other assets you’re able to trade with and invest in. It also offers a variety of passive income options including staking, crypto savings, auto-investments, and more.

Like Coinbase, Binance also offers extensive security features to protect clients’ funds and it gives you access to a wealth of educational materials that enable you to learn more about cryptocurrencies.

Methodology for compiling our ratings of crypto exchanges

Traders Union applies a rigorous methodology to evaluate crypto exchanges using over 100 quantitative and qualitative criteria. Multiple parameters are given individual scores that feed into an overall rating.

Key aspects of the assessment include: