If you exchanged cryptocurrency for goods, cash or other crypto currencies then this is normally considered a disposal for the purposes of capital gains tax and you may need to include a capital gain or loss in your income tax return.
1. Disposal of cryptocurrency
You must report a disposal of cryptocurrency for capital gains tax purposes if you either:
■ exchange one cryptocurrency for another cryptocurrency
■ trade, sell or gift cryptocurrency
■ convert cryptocurrency to a fiat currency, for example to Australian dollars (AUD).
If you only transfer cryptocurrency from one wallet to another wallet while maintaining ownership of the coin, it is not considered a disposal of cryptocurrency for tax purposes.
If your cryptocurrency holding reduces during this transfer to cover the network fee, the transaction fee is a disposal and has capital gain consequences.
2. Calculating capital gains tax (CGT) on cryptocurrency
Convert your cryptocurrency purchases and sales into AUD to calculate your capital gain or loss.
A capital gain or loss is the difference between your:
- cost base (cost of ownership – including the purchase price of the coin plus certain other costs associated with acquiring, holding and disposing of it), and
- capital proceeds (what you receive or the market value of what you receive) when you dispose of your cryptocurrency.
If you purchase cryptocurrency using AUD, the amount you pay is included in your cost base. If you acquire a cryptocurrency by exchanging it for another cryptocurrency, your cost base is the market value in AUD of the cryptocurrency you used at the time you purchased the coin.
3. Keep records
You need to keep records of all your transactions associated with acquiring, holding and disposing of cryptocurrency. You will need to keep records for five years after you dispose of cryptocurrency.
While Buying (acquiring)
■ receipts of transactions, or
■ documents that display:
– the cryptocurrency
– the purchase price in AUD
– the date and time of the transaction
– what the transaction was for
■ commission or brokerage fees on the purchase
■ agent, accountant and legal costs
■ exchange records
During Owning (holding)
■ software costs related to managing your tax affairs
■ digital wallet records and keys
■ documents showing the date and quantity of cryptocurrency received via taking or airdrop
While Selling (disposing)
■ receipts of sale or transfer, or
■ documents that display:
– the cryptocurrency
– the sale or transfer price in AUD
– the date and time of the transaction
– what the transaction was for
■ commission or brokerage fees on the sale or transfer
■ exchange records
■calculation of capital gain or loss
To help calculate any capital gain or loss set up an easy to use record keeping system as a priority. This can be as simple as a spreadsheet or you can use professional software. Scan digital copies of your records to make it easier to store and access them.
For more information and tax tips, please contact us at 08 6333 0375 or email us as info@ismaccountants.com.au
