Date posted: 21/06/2022

Chartered Accountants: Don’t Get Caught In A Crypto Crunch This Tax Time

After another turbulent year for cryptocurrencies, Chartered Accountants ANZ (CA ANZ) has sounded a tax warning

After another turbulent year for cryptocurrencies, Chartered Accountants ANZ (CA ANZ) has sounded a tax warning to those who have dabbled in the asset class.

As tax time approaches, CA ANZ Tax Leader Michael Croker said those who have cashed out their crypto gains over the year may face significant Capital Gains Tax (CGT) implications as the ATO treats cryptocurrencies as it does shares.

“Irrespective of sceptical friends and family views on cryptocurrencies, the tax office treat it as an asset class, so you need to be aware of your obligations,” Mr Croker said.

“From de-fi and Web3 to crypto and NFTs – the new digital world has become a bamboozling place for many.

“Some have won big, and some have lost it all in this crypto market.

“Regardless of where you land on the wheel of fortune, or misfortune in some cases, cryptocurrencies are not fake money, and they are a taxable investment when you want to cash them out into fiat currency like the Australian dollar.

Roy Morgan research revealed that more than 1 million Australians have an investment in cryptocurrency at an average value of more than $20,000.

Maybe not unsurprisingly, younger Australians were keener on the asset class, with around 12 per cent of people aged 18-24 invested in crypto, compared to only 2 per cent of those aged over 50.

While many Australians are attracted to cryptocurrencies because they are removed from traditional finance, Mr Croker warned that they are not removed from the tax system.

"NFT does not stand for ‘Not For Taxing’ – so if you sold your picture of a digital ape during the past year and realised a gain, your NFT is liable for CGT."
Michael Croker, CA ANZ Tax Leader.

“The ATO also collects bulk records from designated Australian service providers as part of a data matching program to ensure the people who trade in crypto pay the right amount of tax and meet their tax obligations.

“Crypto is viewed by some as the currency platform of the future, but the ATO is watching when it comes to tax.”

Mr Croker said that if you took a hit while speculating on the crypto market, it’s not all bad news.

“It’s a bit of a pyrrhic outcome, but if you sold crypto at a loss, then that will minimise your overall taxable income.”

Mr Croker said there are some key things to remember this tax time:

Just like other investment assets, a CGT event occurs when you dispose of your cryptocurrency – that can mean trading or exchanging it for another cryptocurrency, selling or gifting it, or using cryptocurrency to buy goods or services.

If you make money (a capital gain) on the cryptocurrency disposal, some or all of the gain may be taxed.

If the disposal is part of a business transaction, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.

“It’s important to speak with a Chartered Accountant prior to making these decisions, as they can provide helpful tips, like when you hold the asset for longer than 12 months, it will reduce your capital gains tax.”

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