A lot of people have gotten involved in the realm of crypto currency, whether it is to strike it reach buying a meme coin or mining from your family computer. It seems to be an asset class that is peaked everyone’s interest, but the ATO is starting to crack down on the intangible asset.
Similar to shares, the ATO will either deem you as an individual investor and mining as a hobby, or trading as a business.
As with shares, if you are investor you purchase assets with the idea of selling down the track to realise a capital gain. The math is simple Sale Price – Purchase Price – Trading expenses. If you hold the asset for more than 12 months you then get a 50% discount off your capital gains tax bill.
If you are trading often and not classed as an investor, instead deliberately trading for a profit, everything is assessable income, which means there is no CGT discount available. However you are allow to make deductions on the hardware and software used in the production of that income.
If you sell one crypto asset for another it still triggers a CGT event, and you will need to record the values in the Australian dollar equivalent the time the trade was made.
Proof of stake is the next one, it is where you hold a crypto and are rewarded more of that currency, this is classed as income, just like interest in a bank, the price you take that reward then becomes your asset price when calculating capital gains in the future when you dispose of the asset.
If you are business however it becomes trading stock, which is still classed as income, but trading stock is not a CGT asset, instead your income is based off the moving price of the asset until which point you dispose of it.
As you can see there are already a few differences between holding it personally as an investor and hobby vs “carrying-on a business” but the biggest difference I think is in mining.
If you mine as a hobby you are producing a CGT asset, this means that no deductions are allowable in regards to the production of the asset (ie the Miner or electricity used). Further more, the cost base will be zero, not the value of the coin when it was minted.
If you are carrying-on a business the minted coins become tradeable stock and are treated as income until which point they are sold. This means that the value of the coin when you minted it could be vastly different to the value of the coin you need to declare come tax time. However you are allowed to deduct the cost of electricity and software as well as depreciation of the crypto mining assets.
The ATO is updating it’s view on how it handles crypto currency quite regularly (so by the time you read it, this could be out of date) so it is best to team up with an accountant that has their finger on the pulse when it comes to these things.
To find out more info:
Cryptocurrency | ATO Community
Tax treatment of cryptocurrencies | Australian Taxation Office (ato.gov.au)
Cryptocurrency used in business | Australian Taxation Office (ato.gov.au)
Koinly: Crypto Tax Calculator for Australia & NZ