When investing in crypto, unlike other forms of investment, you don't actually pay any tax on the currency itself while you hold it. You simply hold it, and watch it as the market changes.
In Australia, your crypto investment is generally subject to Capital Gains Tax. You report capital gains and losses within your Income Tax Return and pay Income Tax on any net gains.
How is cryptocurrency taxed in Australia? The ATO rarely views Bitcoin & other cryptocurrencies as currency or money. Instead, for the purposes of tax they class cryptocurrency as property. As such, trading falls under the Capital Gains Tax (CGT) regime.
Yes, cryptocurrency losses can be used to offset taxes on gains from the sale of any capital asset, including stocks, real estate and even other cryptocurrency sold at a profit.
Capital gains are taxed at the same rate as taxable income — i.e. if you earn $40,000 (32.5% tax bracket) per year and make a capital gain of $60,000, you will pay income tax for $100,000 (37% income tax) and your capital gains will be taxed at 37%.
If you're a company, you're not entitled to any capital gains tax discount and you'll pay 30% tax on any net capital gains. If you're an individual, the rate paid is the same as your income tax rate for that year.
How the CGT discount works. When you sell or otherwise dispose of an asset, you can reduce your capital gain by 50%, if both of the following apply: you owned the asset for at least 12 months. you are an Australian resident for tax purposes.
Taxpayers are required to report all cryptocurrency transactions, including buying, selling, and trading, on their tax returns. Failure to report these transactions can result in penalties and interest.
However, you still need to report your earnings to the IRS even if you earned less than $600, the company says. The IRS can also see your cryptocurrency activity when it subpoenas virtual trading platforms, Chandrasekera says.
After an initial failure to file, the IRS will notify any taxpayer who hasn't completed their annual return or reports. If, after 90 days, you still haven't included your crypto gains on Form 8938, you could face a fine of up to $50,000.
Designated service providers are bound by law to provide the ATO with requested information. That means the ATO has the 'know your customer' (KYC) information you provided when signing up for any Australian exchange or wallet. This includes personal information and transaction data like: Names.
The ATO taxes cryptocurrency as a “capital gains tax (CGT) asset”. This means you must declare the transactions (on your tax return) for every time you traded, sold or used crypto. The ATO does not see crypto as money, and they don't class it as a foreign currency.
You can't legally outright avoid your tax liability (without facing steep crypto tax evasion penalties), but there are simple steps you can take today to help reduce your tax bill ahead of the end of the financial year, including: Track your gains & losses. Harvest unrealized losses. Offset losses against gains.
1 - Buy and Hodl your crypto investments for the long term
So one of the simplest strategies to avoid paying crypto taxes, is to simply buy and hold your crypto. Even if the value of your crypto portfolio increases each year, you won't have to pay tax until you sell. This strategy works best the longer you hold.
As with other CGT assets, if your crypto assets are held as an investment, you may pay tax on your net capital gains for the year. This is: your total capital gains. less any capital losses.
As a result, you'll need to document your crypto sales details, including how much you bought it for and when. These transactions are typically reported on Form 8949, Schedule D, and Form 1040.
Crypto exchanges are required to file a 1099-K for clients who have more than 200 transactions and more than $20,000 in trading during the year.
Do I have to report crypto on taxes if I made less than $1,000? All of your cryptocurrency income and disposal events should be reported to the IRS, regardless of how much you made. Intentionally not reporting taxable income is considered tax evasion.
Many investors believe they only need to report cryptocurrency on their taxes if they've made gains. This is not true. All taxable events need to be reported to the IRS. In addition, not reporting your cryptocurrency losses means that you won't be able to claim the associated tax benefits.
Failure-to-File Penalties
If you don't report your crypto gains and losses on a tax return, you could incur a penalty of 5% of the unpaid tax for each month the tax return is late, up to a maximum of 25%. If your return was over 60 days delinquent, the minimum penalty is $435 or 100% of the required tax.
Do I have to pay taxes if I sell crypto at a loss? Selling cryptocurrency at a loss can reduce your tax bill by offsetting capital gains from cryptocurrency, stocks, and other assets.
The capital gains tax property six-year rule allows you to use your property investment, as if it was your principal place of residence, for a period of up to six years, whilst you rent it out.
The ATO receives a large amount of data from ASIC, brokers, exchanges and share registries. This data includes dividend payments, and the purchase and sales of shares, which will appear on the ATO's reports used to prepare tax returns.