For those that have dropped money on crypto, here’s the D’Marge (Australia) guide to saving money come end of financial year.
According to Fernando Prieto, CA (Solid Partners Accountants & Advisors), the first step in deciding how to deal with cryptocurrency losses, “Is to determine whether you bought them on capital account or revenue account.”
Capital Account Tax
If you bought your crypto on a capital account as an investment, you will most likely be taxed under the capital gains tax provisions.
In this case, if you hold onto the cryprocurrency for more than 12 months, you will be eligible for a 50% discount on the capital gain.
Similarly, if you make a capital loss, you will be able to carry forward the losses and apply them against future capital gains you make.
However, if you plan to do this, remember: capital losses cannot be applied against other income (i.e. wages, rental income etc.), but only against capital gains.
On the other hand, if you bought your crypto as a personal use asset, your loss may be disregarded if certain conditions are met.
“If you acquired your Cryptocurrency for personal use, any capital gain or loss will be disregarded. The capital gain will only be disregarded if the cryptocurrency cost was less than $10,000.”
If you want to apply the ‘personal use asset test’ to disregard the gains you made, it’s important that you keep good records to prove that you were only using the cryptocurrency to transact—and you had no intention of investing.
If you consistently acquire cryptocurrency over a period of time (and your intention was to wait for a favourable exchange rate) then during the acquisition phase you also buy some goods and services, you would still be deemed to have purchased the cryptocurrency for investment and thus be taxed as a capital gain.
In order to avoid this, the ATO has listed on it’s website that the following records should be kept:
- The date of the transactions
- The value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
- What the transaction was for and who the other party was (even if it’s just their cryptocurrency address)
Revenue Account Tax
If you are deemed to be ‘carrying on a business’ then income from cryptocurrency is included in your assessable income. In this case, losses would be allowed as deductions.
Below are some examples of business involved in cryptocurrency:
- Cryptocurrency traders
- Cryptocurrency mining businesses
- Cryptocurrency exchange businesses (including ATM’s)
Fernando also pointed out that the purchase of cryptocurrency could be deemed to be a profit-making undertaking, in which case you would be taxed on any profits as assessable income. Losses could also be offset against other income (i.e. wages, rent etc).
If you are profit making in this scenario you would be taxed as ordinary because losses can be offset against other income. As this is a complex and rare case, he encourages anyone in it to seek independent advice.
Disclaimer: The information provided below is general in nature and should not be relied upon by any tax payers as it does not take into consideration your circumstances. We are not responsible for any damages or penalties that may arise from the information we have provided.