Tax tips for crypto investors

By Fergus Halliday

June 15 2021
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If you’ve invested in the sharemarket before, you’re probably going to find the tax implications of cryptocurrencies like bitcoin to be a little familiar.

As the price of bitcoin rose (and then fell) over the last 12 months, it’s become more and more common for mainstream investors to try and cash in on the cryptocurrency craze.

The growing popularity of the blockchain-based asset class hasn’t escaped the notice of the Australian Taxation Office (ATO).

Back in May, Assistant Commissioner Tim Loh said the ATO is “alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations”.

“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions and cryptocurrency online exchanges to follow the money back to the taxpayer,” Mr Loh said.

Speaking to nestegg, CPA Australia tax expert Elinor Kasapidis had several tips for crypto investors ahead of tax time.

“Cryptocurrency is fast becoming a non-traditional alternative to shares and property. Almost one in five Australians invest in cryptocurrencies. What they may not realise is that their crypto gains and losses are subject to capital gains tax rules,” she said.

Ms Kasapidis reminded crypto investors that “if you’ve acquired or disposed of cryptocurrency in the 2020-21 income year, you need to report this activity in your tax return”.

However, “like investment losses from shares or property, cryptocurrency losses are deductible against your other income”.

She cautioned against trying to sneak any crypto-related capital gains past the Tax Office, noting that “the ATO receives transaction data from digital exchanges and data-matches information about cryptocurrency trades with investors’ tax returns. If they detect an inconsistency, you can expect to hear from them.”

As with other sorts of investing, Ms Kasapidis admitted that “the crypto tax rules can be complicated”.

“Special rules apply if you exchange one cryptocurrency for another cryptocurrency and for chain splits, staking rewards and airdrops.”

The same goes for businesses that deal in large volumes of cryptocurrency or use it to pay employees.

As per the ATO, employers are able to pay employees in cryptocurrency rather than Australian dollars so long as a valid salary sacrifice arrangement is in place.

Any cryptocurrency acquired in this way is considered to be a fringe benefit by the ATO and subject to the provisions of the existing legislation.

However, in an academic paper titled The regulation of cryptocurrency to remunerate employees in Australia, Griffith University’s Dr Craig Cameron found that “crypto remuneration of employees, as opposed to remuneration with money wages, may have unintended and potentially unfair consequences for the employee”.

This legal uncertainty around crypto remuneration even extends to super, with Dr Cameron noting that “it appears that the calculation of superannuation entitlements is based on the interpretation of crypto remuneration for PAYG tax purposes”.

“If you’re a crypto investor, we strongly advise you see a CPA for help with your tax,” Ms Kasapidis said.

About the author

Fergus Halliday

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus Halliday

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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