The Taxman Is After Your Bitcoin Profits

Understanding your obligations with digital currencies.

The Taxman is after your Bitcoin profits!

The tax man is after Australians trading cryptocurrency to declare profits in their annual returns. In particular, the ATO will be using new anti-money laundering legislation and counter-terrorism financing laws alongside the ATO’s data matching technology and a range of existing powers to crack down on tax-cheating bitcoin traders.

Below is a quick summary of the tax office’s current view on digital currency for income tax purposes:

Transacting: Exemptions for personal use apply, including assets worth less than $10,000, which are maintained for personal use or enjoyment.

Investment: bitcoin, ripple, ethereum and hundreds of other digital currencies are considered property, not currency, for tax purposes in Australia, making them liable for capital gains tax when sold for a profit after July 2017.

If the cryptocurrency is held by an Australian resident taxpayer for more than 12 months before being sold or used, the taxpayer may be eligible for the 50 percent capital gains tax discount.

Trading: If you are actively trading cryptocurrencies for profit, as opposed to holding them for investment, the profit or loss will form part of your assessable income.

Mining: Where you are in the business of mining bitcoin, any income that is derived from the transfer of the mined bitcoin to someone else is included in assessable income.

Any expenses incurred in respect of the mining activity are allowed as a deduction.

Bitcoin held if you are carrying on a business of mining and selling bitcoin is considered to be trading stock. You’d need to bring into account any cryptocurrency on hand at the end of each income year.

Conducting an exchange: If you are buying and selling cryptocurrencies as an exchange service, you will pay income tax on the profits and transactions will be subject to GST. Any cryptocurrencies you hold at financial year end will be considered the trading stock.

RECORD KEEPING

Everyone dealing with bitcoin needs to keep the following records:

  • the date of each transaction
  • the amount in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
  • what the transaction was for (the purpose), and
  • details of the other party (the bitcoin public address is enough).

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