Tax Decoded: Everything You Need to Know

News 18 July, 2022

The uprising in the use of bitcoin has led to accepting it as a form of property and has been legalised by many countries. In Australia, the government does not perceive bitcoin or any other form of cryptocurrency as money or foreign currency. The Australian Taxation Office, commonly known as ATO, classifies crypto as property and an asset for Capital Gains Tax or CGT. However, crypto can also be observed as an additional form of income and can be further taxed in the name of income tax. This factor heavily depends on the specific transaction made by the trader. Crypto tax depends on the intention behind the trade and the method of making the transaction.

How much is the tax?

The percentage of CGT paid by a trader is known to be the same as one’s personal income tax rate. You will have to pay fifty per cent lesser capital gains tax if you show no activity for a year. In case you have sold, traded or earned crypto in the previous financial year, it becomes necessary for you to declare it in the annual tax return to the ATO.

Capital gains tax

This event can occur if you decide to dispose of your cryptocurrency. The four ways by which you can pay Capital Gains Tax are:

  1. Selling crypto for AUD or any other accepted currency.
  2. Exchanging for other cryptos, which includes stablecoins.
  3. Spending crypto on various goods and services.
  4. Gifting crypto.

Note: if you successfully keep a hold on to it for a year before disposing of it, you will have to pay fifty per cent less tax on capital gains.

Calculating your tax

The following data accounts for the individual tax rates set by the ATO for the year 2021 to 2022.

Income                                                                        Tax rate

$0–$18,200                                                                         0%

$18,201–$45,000                                       Null+19% more over 18,200

$45,001–$120,000                                     $5,092+32.5% more over 45,000

$120,001–$180,000                                               $29,467+37% more over 120,000

$180,001 and more                                    $51,667+45% more over $180,000

Breaking down the tax

A few allowances and tax-free conditions lead the taxpayers to trade happily are:

  1. Tax-free gateway: paying income tax becomes mandatory only when your annual income hits $18,200.
  2. Discount of 50% on Capital Gains Tax- as aforementioned, holding it for a year can fetch you a deal.
  3. Asset for personal use: an exemption can be made from the CGT if you are holding it as your asset for personal use. Purchase below $10,000 of crypto for buying a commodity for personal use can exempt you according to the rule.

Tax Rules for Crypto Investors and Traders

The tax rules for investors and traders are set differently by the ATO. They are discussed further.

An investor is a person who is interested in investing for a future return. An investor usually buys and sells crypto in the form of personal investment, working towards the goal of building wealth for an extended period. A significant fraction of the crypto users in Australia belong to this category. Moreover, the profits gained are subjected to the Capital Gains Tax.

A trader is a person who is highly active in the game of crypto to generate income and operate it as a business setup. ATO taxes you as a trader if you are into crypto trading, forging and mining business. Here, the profits are taxed in the form of income.

To sum it up

Decoding the maths behind crypto tax can help you more efficiently trade or invest in cryptocurrency. Knowing the rules where you will not have to pay the tax can undoubtedly be handy information for you. So next time you buy or sell crypto, remember the golden tax rules.