With the federal election in the books, cryptocurrency news will be watching carefully to see what the re-elected regime will do in its second term. Though the focus is on the regulatory aspect of the market, investors should be aware of changes and updates that have come from the Australian Taxation Office (ATO).
What will these changes mean for investors? Let’s take a closer look at what the proposed changes are, how they will impact the market, and what to do with the information and guidance from the ATO.
Financial Year Coming to a Close
There is an important milestone on the horizon as the Australian financial year comes to a close on June 30. The new tax season will begin on July 1, 2025. Australian taxpayers that have income or capital gains from cryptocurrency investments will then have to report that activity to the ATO with a deadline of October 31, 2025.
The ATO offers detailed guidance when it comes to potential tax implications of crypto transactions. That said, it can be a lot to digest. Learning more about the updates from the ATO and what it could all mean is important.
ATO “Blitz” Could Have Far-Reaching Impacts
Before getting into the latest updates, there have been warnings of an ATO “blitz” as the tax office uses data-matching in an effort to crack down on investors by issuing huge tax bills, surprise audits, and even potentially investigations as it relates to cryptocurrency assets.
The ATO will be closely watching cryptocurrency activity as the end of the financial year approaches. The ATO will then collect records from cryptocurrency service providers in an effort to ensure that investors are paying the necessary tax on those assets.
Among the data provided to the ATO will be sale and purchase information. It will also be utilizing a crypto data-matching program that it has been using since April 2019. When investors buy, swap, or sell cryptocurrencies for a fiat currency – or trade out one type of crypto for another – it is subject to capital gains tax. Those earnings must be reported.
How Cryptocurrencies (Including NFTs) are Taxed in Australia
According to the ATO, cryptocurrency is classified as a property. Because of that, any profits that come from trading activities may be taxed as regular income or capital gains depending on not only how the ATO classifies those investment activities but also the type of transaction.
Should it be taxed as regular income, you will need to pay income tax on the entirety of that income. If it is a capital gain, then you can access 50% of those long-term capital gains tax discounts, reducing your tax bill substantially.
The ATO does offer a bit of guidance when it comes to determining what a trader is versus an investor.
Investor. Investors are generally individuals that invest in an asset for a potential return. The goal of investors is to build wealth over time based on profits attained through long-term capital gains. Sometimes, investors can have income from this depending on how those crypto assets were obtained. Investors also have access to a tax break on long-term capital gains.
Trader. A trader uses cryptocurrency to generate an income and is also using a business setup. The definition from the ATO of a trader is one who undertakes “business activities for the purpose of earning income from buying and selling shares.” Some of the considerations made of traders include profit motive record keeping, business plans, and transactions. Profits on traders are taxed as income and those traders cannot make use of the 50% long-term capital gains tax discount.
Crypto Income
Some transactions, even for individual investors, will see crypto profits considered as ordinary income. That includes staking rewards, being paid in crypto, referral bonuses, selling an NFT you have created, or any crypto airdrops.
The ATO hasn’t provided much in the specification of DeFi transactions, but don’t assume that those DeFi investments are tax free. Look at current guidance offered by the ATO and make your own inference as to the tax treatment. It doesn’t hurt to have a crypto accountant with some experience, either.
Crypto Gains and Gifting Crypto
Disposing of a property in any way, including cryptocurrency, means that you will have a capital gains or capital loss. The tricky part is that gains or losses could be subject to potential tax events but are not guaranteed to be.
That’s partially because the ATO doesn’t currently have specific tax rates on capital gains. Depending on the bracket you fall under, you will pay income tax for any short-term gains (assets held less than a year). For those held more than a year, you get a 50% discount, essentially paying income tax in your bracket on half of the gains.
As far as gifting cryptocurrency goes, it depends on the personal use asset rule. Crypto can be defined as a personal use asset, but it has to meet certain conditions which tend to be quite specific to cryptocurrency.
Personal use assets are considered capital assets with a value of $10,000 or less. These assets are kept for personal enjoyment or use, and any losses or gains that come from these assets are ignored when it comes to tax purposes.
As it relates to crypto, guidance from the ATO says that any cryptocurrency asset that has been acquired and used to buy personal use items is more than likely going to be considered a personal use asset. That said, crypto assets acquired and held before buying those personal use items may not qualify as a personal use asset. If you are uncertain, consult a cryptocurrency tax accountant to be certain.
Lost or Stolen Crypto
Though it isn’t a common occurrence, losing crypto or having it stolen presents another challenge. Whether you lost your private key or had cryptocurrency stolen from you, it could potentially be claimed as a capital loss when filing with the ATO.
The determining factor is how much is considered irrecoverable. You will need to provide a ton of evidence as to why you can’t get that crypto back. When it comes to theft or private key losses, these are more than likely going to be capital losses under the ATO. Losses due to hacks on an exchange may be less successful when claiming capital losses.
A Final Word
The cryptocurrency tax landscape is still a bit murky and confusion if you have no prior experience. When in doubt, refer to the tax guide issued by the ATO. If you still quite sure of what to claim, consult an expert who can give you proper advice.
With potential changes coming in the regulatory landscape, this will no doubt be a heightened period of review for the ATO. It is important for crypto investors and traders to file their holdings appropriately in order to prevent any potential issues, fines, and punishments. Some exchanges even offer guides when it comes to learning about crypto tax, so check them out.
