How Cryptocurrency impacts your tax return

Cryptocurrencies emerged as the first digital currency to be used as an alternative for the payment of goods and services.

These cryptocurrencies are traded as digital tokens or coins. Unlike physical currency, it does not exist in a physical sense as coins or notes, but in a digital wallet, relying on cryptography and blockchain for security.

In Australia, crypto isn't legal tender and isn't commonly used for everyday transactions or savings. Instead, it's favoured as a speculative investment, known for its volatile nature, which can be influenced by market speculation and media attention. Numerous trading platforms facilitate cryptocurrency investments.

Despite misconceptions about operating outside the system, regulatory bodies like the Australian Taxation Office (ATO) have swiftly adapted to enforce compliance. The ATO initiated a crypto asset data-matching program in the 2014-15 financial year, and has been collecting data on cryptocurrency transactions since that time.

Transactions involving cryptocurrency, such as disposal or exchange, are classified as Capital Gains Tax (CGT) events, requiring reporting of individual gains or losses on the relevant tax return. Given the frequent trading associated with crypto, reporting for tax returns can be complex.

To simplify year-end accounting, there are now reporting platforms that aggregate all crypto trading transactions and produce detailed reports suitable for tax return inclusion.

We require all clients with crypto elements in their tax returns to provide a transaction report from one of these reporting platforms, for inclusion in your relevant tax return.

A platform like Koinly is a good place to start, but there are other options available, as long as they meet all the reporting requirements. If you are unsure whether a particular platform meets the ATO reporting requirements, please contact our office.

For more information on recording crypto transactions and tax obligations, visit the ATO website here: Crypto Asset Investments

Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.