In Australia, the Australian Taxation Office (ATO) has specific rules for taxing cryptocurrencies. This is especially important to understand if you're considering investing in crypto assets, as they can have a serious impact on your tax liability.
Capital Gains Tax
In Australia, cryptocurrencies are subject to Capital Gains Tax (CGT). The ATO treats cryptocurrencies not only as digital currencies but also as assets. This means that every time a crypto investor disposes of their cryptocurrency — by exchanging it for another cryptocurrency, selling it for fiat currency, or using it to buy goods or services — a CGT event occurs. Therefore, all these operations must be reported.
This also applies to transactions between cryptocurrencies, even if they take place on a decentralized platform. For example, if you exchange Ethereum for another token or NFT, that transaction will trigger a CGT event and a capital gain or loss must be recorded and reported. With a few exceptions, the same applies to the use of cryptocurrencies to purchase goods or services.
For long-term investments, CGT rebates may apply if you hold the cryptocurrency for more than 12 months.
income tax
In addition to capital gains tax, income tax also plays an important role in the taxation of cryptocurrencies. If you earn income from cryptocurrency mining, participating in DeFi protocols, or earning interest on your property, this is considered taxable income and must be declared on your tax return.
It is important that the activity can be tracked online. Therefore, it is necessary to accurately report all activities related to the use of DeFi protocols and similar systems. The ATO has made it clear that it closely monitors cryptocurrency transactions and that failure to report such gains can result in fines.
Cryptocurrency tax software can be very helpful in keeping a complete record of your transactions.
As always, given the complexity and rapidly evolving nature of the cryptocurrency space, it is highly recommended that you consult a tax professional who is familiar with the ins and outs of Australian cryptocurrency taxation.