For example, the price of bitcoin has fallen about 40 percent to $55,000 since November, while Ethereum has plunged about 44 percent to $3,500.
An ASX-listed BetaShares exchange-traded fund called CRYP has more than halved its value since November, to around $5. It invests in up to 50 crypto-exposed securities, including Coinbase, Riot Blockchain and MicroStrategy.
During the same period, another ETF called DIGA, which tracks the prices of a basket of crypto mining and infrastructure companies, plunged from $7 to about $2.50.
Fiscal obligations
Cryptocurrencies are treated like other investments, such as stocks, with investors buying or selling for fiat currency, or exchanging one cryptocurrency for another, and are subject to capital gains or losses, which must be reported.
Capital gains tax will apply when it is sold as an investment, warns Mark Chapman, tax director at H&R block.
That is calculated on the profit between the amount paid and the income received, which can be discounted by 50 percent if it is maintained for more than 12 months.
Elimination occurs when cryptocurrencies are sold for Australian dollars; sell one currency for another, give it away, exchange it, or use it to pay for goods or services.
โBe careful though, CGT is not always relevant,โ Chapman warns.
โIf you are acquiring the cryptocurrency to trade, you may be considered to be running a business, in which case you will pay income tax on any trading profits. This is less advantageous than CGT because the 50 percent CGT discount does not apply.โ
Those who regularly buy and sell cryptocurrencies could be considered traders, rather than investors, which could also lead to income taxes.
โIt can be a fine line between being an investor and a trader,โ says Chapman.
โIn general, you will be considered a trader if you are turning over crypto every few days in search of profit, have many transactions, and are running a trading structure with trading plans, a registered trading name, and an Australian trading number.โ
In 2019, the ATO introduced the comparison of data from cryptocurrency service providers with individuals' tax returns. This has been expanded to capture data up to and including this financial year.
The ATO can track cryptocurrency where it interacts with the real world through information from banks, financial institutions, and online cryptocurrency exchanges to trace the money back to the taxpayer.
Cryptocurrency traders are warned that tax authorities may also review tax returns before issuing an assessment notice and request that they amend their return to include capital gains from transactions.
โIf what you disclose to the ATO on your tax return doesn't match the data the ATO has received from designated service providers, you can expect at least one 'please explain' letter,โ says Chapman.
โThat makes it much more difficult to hide behind the anonymity that was previously one of the hallmarks of cryptocurrencies.โ
Other tax specialists urge merchants to keep accurate records for up to five years of cryptocurrency gains and losses, and the dollar value at the time of the transactions, along with what they were used for and who the party was, even if it was. a wallet address. .
Individual businesses or traders who are paid cryptocurrency for goods or services will have the payments taxed as income based on their value in Australian dollars.
The ATO recommends that investors keep records of:
- cryptocurrency purchase or transfer receipts;
- exchange records;
- agent registrations, accounting and legal costs;
- digital wallets; and,
- software costs related to the management of tax matters.
unregulated market
Chris Brycki, CEO of Stockspot, an online investment adviser and fund manager, believes the ATO will also target investors who correctly calculate costs, such as brokerage fees, transfer and platform fees, expenses. loans, interest on loans, and legal fees.
It adds that the ATO will look at receipts and details of the currency type, purchase price, date and time of transactions in Australian dollars, and what was paid in commissions or brokerage fees.
โUnlike other markets, like gold miners, the crypto market is not yet mature and there are only a limited number of publicly traded companies,โ says Brycki.
โMany of the largest cryptocurrency exchanges are still private companies, while publicly traded companies are relatively small.โ
Those preparing their tax returns on cryptocurrency gains or losses should consider:
- Investors can claim a capital loss when the proceeds from the sale are less than their cost basis, says Chapman. These losses can be offset against capital gains arising in the same year and carried over indefinitely until capital gains arise to absorb them. Capital losses can only be offset by capital gains, they cannot be offset by any other form of income;
- Investors who are victims of cryptocurrency fraud or theft could claim the missing amount as a principal loss. Full records of profits and losses must be kept; and,
- Traders can potentially offset a loss against any other income that arises in the same year. This is subject to anti-avoidance rules involving non-commercial losses.
