Australia’s capital gains tax (CGT) applies to cryptocurrency in the same way that it would apply to normal money, and this can be surprising for people who are not expecting it. Not only does it mean that crypto is taxed, but it can require some extra effort to figure out how much you owe.
If you are worried about CGT or want to be more informed about what you will pay, then here is a brief overview of how it works.
What is Capital Gains Tax?
Capital Gains Tax, shortened to CGT for convenience, is the tax that you pay on any capital gain. A capital gain is simply a profit (either money or assets) that you earn by selling something – this could be a hand-crafted product or an entire house, the rules still apply.
The Australian Tax Office does not view cryptocurrency as a currency but as an asset, similar to stocks. When you gain or lose crypto, you are gaining or losing an asset, which can make your earnings fall under the same capital gains tax rules.
How Does CGT Apply?
Capital gains tax applies in two different ways, depending on how you handle your cryptocurrency. The majority of people will count as investors since their crypto is for personal investment and usually relates to long-term gains.
However, businesses and sole traders that operate with cryptocurrency can often be classified as a trader instead. If this happens, your tax may apply differently, but it varies based on how each business operates – there is not a single trader tax formula.
How Much Do I Pay?
Capital gains tax occurs when you ‘dispose’ of cryptocurrency, whether that is a sale, purchase, trade, or gift. Generally, your tax will be based on your crypto income relative to the value of the coins in AUD. For example, your tax rate between $18,201 and $45,000 is 19%.
Cryptocurrency can be quite a profitable tool if used correctly, and this means that your income threshold might change each time you have to calculate it. Be sure to check exactly how much you have earned since it is possible to pay 19% one year and 32.5% the next.
What About Personal Use?
The impact of CGT on cryptocurrency trading is not as bad as you might think, but there are ways to get it outside of the tax system entirely. If you use cryptocurrency mainly to purchase personal items, like a laptop that is not being used for your business, then it can be tax-exempt.
For this to work, you have to keep that cryptocurrency separate from your business or any other money-making options that you have available. You also have to make It clear that your crypto is not being used as an investment and purely as personal funds.
This could mean that you keep a crypto wallet that is just for personal use, but it depends on how you are using the actual coins. Even if you are not sure, it could be a good idea to check if your crypto spending will be exempt anyway, just in case – it might save you some extra tax money.
