Capital Gains Tax
Gifting crypto, even if you do not receive payment for it, is still considered a disposal. As such, it is subject to capital gains tax. If you are on the receiving end, you do not have to pay tax when you receive the cryptocurrency, however, if you dispose of it, that is when capital gains tax will be applied. If you are donating to a deductible gift recipient, you can claim the donated amount in dollars as a deduction on your tax return.
Alternative crypto trading methods
Various other crypto trading methods such as margin, futures, contracts, or options also exist, however, there is minimal or no guidance currently from the ATO on the tax treatment of these products for cryptocurrency. As such, it is best to talk to a reputable tax accountant specialising in cryptocurrency for further advice.
Calculating your capital gains or losses
It’s essential to know the value of your cryptocurrency in Australian dollars to work out your capital gain or loss by assessing this information through a reputable online exchange.
If you’ve purchased or sold crypto directly with Australian dollars the sale and purchase prices are fairly straightforward, make sure you take into account brokerage fees included in each transaction. If purchases or sales were made in an alternative cryptocurrency though these must be accounted for at the Australian market value at the time of transaction.
Your gain or loss is simply the amount you sold your cryptocurrency for (as it equates in Australian dollars) minus what you purchased it for.
For taxation purposes, this is even easier with a service like Ftplus. Full tax reports based in Australian dollars can be generated and downloaded as needed to cover any time period you like.
When does income tax apply, and how do I calculate it?
We’ve demonstrated above that ordinary income derived by traders, or businesses that operate in cryptocurrency as their primary source of income.
Essentially, if you’re receiving cryptocurrency as payment for goods or services, or by mining it, this counts as ordinary income that is taxable.
Market value is applied on the day the cryptocurrency is received to determine the income amount
If you’re declaring cryptocurrency as ordinary income, you may also have related deductions. Business expenses you purchase with cryptocurrency throughout the financial year, including the cost of acquiring cryptocurrency itself, can be deducted from your annual tax return in the same way as if they were paid for with fiat currency.
What if I’m not a cryptocurrency mining or trading business, but we accept cryptocurrency? Income Tax
If you’re one of a growing number of Australian businesses that accept cryptocurrency in exchange for goods and services, this needs to be accounted for as part of your ordinary income and accounted for in its value in Australian dollars.
A reputable cryptocurrency exchange will be able to help you determine the value in Australian dollars.
Similarly, when you incur business expenses and pay for these in cryptocurrency, you are entitled to deductions based on the value of the acquired items, as stipulated by the Australian Taxation Office.
Getting paid in cryptocurrency Income Tax
It is not uncommon, especially among businesses that operate by trading or exchanging cryptocurrency, to pay their employees, at least partially, in crypto.
If, as an employee, a portion of your paycheck comes in the form of cryptocurrency, like fiat currency, this is constituted as a portion of your income. As such, it is subject to Income Tax. In some cases, being paid in cryptocurrency can constitute a fringe benefit.
Tax loss-harvesting
Tax loss-harvesting is the concept of recognising capital losses on CGT assets which can be used to offset against current or future capital gains. You’ll be able to deduct your net capital losses from your net capital gain for the year. Your net capital gain is the total amount of capital gains you’ve made throughout the financial year, while your net capital loss is the total amount of capital losses you’ve made throughout the financial year.
Tax loss harvesting example
Priti bought 1 BTC in July 2021 for $32,000. She noticed the price of BTC drops to $30,000 and sells her 1 BTC. She’s made a capital loss of $2,000.
She uses the $30,000 to purchase another BTC and holds it.
Priti has also invested in ETH this financial year. She bought 1 ETH for $2,000 and later sold it. The price of ETH is $3,000 on the day she sells. She has a capital gain of $1,000.
Priti can use her capital loss from BTC to offset her capital gain from ETH – so she’ll pay no Capital Gains Tax on her gain from ETH. She also has another $1,000 capital loss leftover which she can offset against gains this year, or even carry over into future financial years to offset against future gains.
However, watch out for the ‘wash sale’ rule which may apply to those who sell and repurchase the same capital asset in a short space of time – purely to realise a capital loss. This practice is viewed unfavourably by the ATO and they can deny your capital loss under these circumstances.
How to file crypto taxes
MyTax
You can easily lodge your tax return through MyTax, which is available through your MyGov account. You can personalise your tax return and declare capital gains or losses by selecting the ‘Capital gains tax (CGT) related items’ option (as seen below).
Completing a printable form
An alternative to lodging your tax return through MyTax is to declare your CGT on a printable form and returning the form to the ATO by mail. There are two separate forms that you’ll need to submit: an income form and a CGT form. If you have made a capital gain, you will need to declare this next to the ‘Current year capital gains’ label. You will also need to enter any capital losses next to the ‘NET capital losses carried forward to later income years’ label.
Total assessable income
One major misconception is that capital gains tax is paid separately to your income tax. However, your net capital gain (after applying any capital losses and the CGT discount) is simply added to your taxable income (wage, interest, dividends etc) for the year in which you sold or disposed of the asset.
Example:
Tony earns a salary of $65,000 per year. Tony buys 1 BTC for $10,000 and 8 months later sells it for $25,000 which nets him a profit of $15,000. This $15,000 gain will get added to his total assessable income within a financial year. So, Tony’s personal tax return items will look like:
- Wages – $65,000
- Capital Gains – $15,000
- Total Income – $80,000
Tony will then pay tax on the Gains achieved based on his total assessable income. At the current marginal tax rates for Australian tax residents, Tony’s tax for the year will be calculated as follows:
- 0% income tax for the first $18,200 of his income (tax-free threefold)
- 19% income tax on the second bracket from $18,201 to $45,000 which equals to $5,092
- 32.5% income tax for the portion of income from 45,001 to $80,000 which equals to $11,375
Total income tax: $16,467
2% Medicare levy tax (2% x $80,000) equals to $1,600
Total Income Tax
$16,467
+
2% Medicare Levy
$1,600
(2% x $80,000)
=
Total Annual Tax
$18,067
Tax on staking
Earning staking rewards Income Tax
Any rewards received from staking cryptocurrency will not trigger a Capital Gains event. Instead, any tokens rewarded to users for staking their cryptocurrency are treated as ordinary income by the ATO. As the staking rewards are not cash, you must determine the market value of the asset when they are received. The income from staking rewards will be added to your other sources of income and will be taxed in accordance to your individual income bracket.
Selling staking rewards Capital Gains Tax
The tax treatment of staking rewards is consistently treated as ordinary income regardless of which protocol or service is utilised. Once received, the rewarded token will be treated like any other CGT asset, and you may have a capital gains event when it is sold.
Tax on staking example
Ben stakes 100 Polkadot (DOT) which is equivalent to $1,000 AUD at the time he stakes it. After 1 year Ben unstakes his cryptocurrency and receives an additional 20 DOT in staking rewards. Ben looks up the market value of the20 DOT at the time it was received and determine it to be equal to $500 AUD. The $500 worth of DOT that Ben receives is considered ordinary income for tax purposes.
If Ben decides to sell his newly rewarded DOT in the future, this will trigger a capital gains event. The cost base of the 20 DOT in the CGT event will be $500. If the price value of Ben’s DOT increases, then this will result in a capital gain. Ben’s capital gain will then be added to his other sources of income and taxed according to his individual tax rates.
Tax on Ftplus Earn
Ftplus Earn is a feature allowing users to earn interest on certain cryptocurrencies they hold on the Ftplus platform. Users can loan their cryptocurrency to Ftplus in exchange for interest, paid at the rate advertised for that particular crypto on the platform. Historically, this sort of mechanism was reserved for institutions, but by facilitating a loan of crypto assets, Ftplus has given users the ability to loan their own currency in return for interest that compounds daily.
Interest made on Ftplus Earn is taxed in essentially the same manner as staking (i.e. income tax at market value). Staking is a mechanism for improving the security of a Proof of Stake (PoS) blockchain. Those who stake their eligible cryptocurrency can receive rewards in return, often with rewards being accrued based on the relative proportion of cryptocurrency that has been staked. Remember that when you sell the asset you’ve earned from staking, it will be treated as a capital disposal for investors and you’ll need to work out whether you’ve made a gain or loss.
How proceeds from airdrops are taxed
An airdrop is when holders of a coin or token are distributed additional coins to their wallet address, usually for free. Airdrops often occur when a network increases its coin supply and allocates new coins to current holders. This is often used as a marketing tactic to increase awareness of a cryptocurrency project.
Similar to staking, the ATO views airdrops as a source of ordinary income at the time it is received, and therefore they are taxed according to your individual income bracket.
Receiving an airdrop Income Tax
Like staking, the ATO views airdrops as a source of ordinary income, and therefore they are taxed according to your individual income bracket, and at the fair market value of the tokens on the date they were received. In this way, airdrops are like bonuses.
According to the ATO, the value of an airdropped token is ordinary income of the recipient at the time it is derived, and this applies to both participant and involuntary airdrops. To calculate how much Income Tax you owe, apply your income tax rate to the fair market value of your airdropped crypto on the day you receive it.
Selling or trading airdropped coins Capital Gains Tax
Should you spend, sell, swap, or gift any coins or tokens you received in an airdrop, this is treated as a capital gains event, with the cost basis being the value of the tokens when they were first airdropped.
Tax on an airdrop example
Yusuf receives 400 Uniswap (UNI) tokens which are airdropped to his wallet. The value of the 400 UNI at the time of the airdrop was $2,000 AUD. This $2,000 will be considered ordinary income for tax purposes.
If Yusuf decides to exchange the airdropped UNI down the track, this will trigger a capital gains event. If the price of UNI has increased from the time it was airdropped to Yusuf, then it will result in a capital gain for tax purposes. The cost base of the 400 UNI will be $2,000. The capital gains are added to Yusuf’s other sources of income and taxed according to his individual tax rates.
NFT tax Australia
NFTs are unique digital collectibles that are an application of blockchain technology. They may be purchased from various websites and platforms and are stored in digital wallets, much like cryptocurrency.
The ATO has released some guidance on Non-Fungible Tokens (NFTs)
which follows a similar pattern to the tax treatment of cryptocurrencies.
Creating and selling NFTs Income Tax
NFTs may be created and sold just as any other product, qualify as business income and are subject to income tax. Further, farming NFTs for a staking reward is likely to be considered income in the same way other staking rewards would be.
Selling, trading and gifting NFTs Capital Gains Tax
For investors, a disposal of an NFT will be treated under the Capital Gains Tax (CGT) regime.
If you purchase an NFT and dispose of it later, you will trigger a CGT event. If you sell the NFT for a higher price than you bought it, you will need to pay tax on the capital gain. If you hold the NFT for longer than 12 months, then you will be eligible for a 50% Capital Gains discount. Because NFTs are non-fungible, you must ensure that you always match the disposal with the original acquisition of the same asset.
NFT tax example
If Cindy buys a Bored Ape Yacht Club NFT for $1,000, and sells it for $5,000 18 months later, her Capital Gains Tax calculations will look like the following:
Capital gain = ($5,000 – $1,000) * 0.5 = $2,000
This $2,000 will then be added to Cindy’s assessable income and taxed according to her individual tax rates.
How are profits from DeFi taxed?
Currently, there is no formal Decentralised Finance (DeFi) guidance out there from the ATO. The DeFi space is constantly evolving from functionality and activities that DeFi allows you to do, to the various protocols out there. One thing that is clear – where you profit from a DeFi activity, there will be a tax obligation. The existing ATO guidance on cryptocurrencies allows us to infer that if you derive or earn income, it will likely be taxable as ordinary income. For crypto assets that you dispose of, there will likely be capital gains tax obligations to consider.
In summary, we can infer that the tax treatment of DeFi might break down into the following tax treatments:
Interest from DeFi protocols: Income Tax if you earn new coins. Capital Gains Tax if you accrue value on LP tokens.
Borrowing from DeFi protocols: Likely no tax unless you receive tokens in return for collateral.
Paying interest in DeFi protocols: No tax unless you’re paying in crypto, in which case, potentially Capital Gains Tax.
Selling or swapping NFTs: Capital Gains Tax, although if you’re selling NFTs as a trader, this could be viewed as additional income and Income Tax would apply.
Buying NFTs: Capital Gains Tax (if you buy with crypto – which is the only option for most).
Staking on DeFi protocols: Income Tax if you earn new coins or tokens. Capital Gains Tax if you accrue value on staked tokens.
Yield farming DeFi protocols: Income Tax if you earn new coins or tokens, Capital Gains Tax if your tokens instead accrue value.
Earning liquidity tokens from DeFi protocols: Income Tax or Capital Gains tax depending on whether you’re earning new coins or increasing the value of one asset.
Adding liquidity to liquidity pools: Capital Gains Tax if you receive a token in exchange for your liquidity.
Removing liquidity from liquidity pools: Capital Gains Tax if you exchange a token to remove your liquidity.
Earning through play/engage to earn DeFi protocols: Income Tax
Profits from DeFi margin trading and options protocols: Capital Gains Tax
There is a lack of guidance in this area and it is advisable to speak with an accountant if you have engaged in complex DeFi activities to ensure you remain compliant.
Crypto taxes for businesses and traders
When running a business mining, trading, or exchanging crypto, you may be able to claim tax deductions for expenses incurred in the carrying out of your business, provided they are directly related to earning assessable income—and that you are indeed running a legitimate business, according to the ATO.
Trading crypto
A trader differs from an investor in that they seek to earn an income from cryptocurrency, rather than to casually supplement their income, and operate from a business setup. Investors will pay capital gains tax on crypto, whereas traders will pay income tax.
If you operate a cryptocurrency trading, forging, or mining business, and regularly buy and sell for short-term gains, or if you run a crypto exchange, the ATO may tax you as a trader. When determining your tax status, the ATO will take into account whether or not you use trading systems, how many transactions you make, whether you have a business plan, and whether you keep records in a business-like manner. Under these circumstances, your profits will be taxed as income. If you believe you are operating a business, it may be worth seeking professional advice from an accountant.
Buying and selling crypto as a business Income Tax
Should you hold cryptocurrency for sale or exchange in the course of your business, the trading stock rules apply; not the rules for capital gains tax. Gains from the sale of cryptocurrency held as trading stock in a business constitute ordinary income—the cost of acquiring cryptocurrency held as trading stock is deductible.
Further, any cryptocurrency you own at the end of the financial year is your trading stock, and you must declare its value as a part of your taxable income. That said, you are free to declare this stock at either its market, cost, or replacement value, giving you some flexibility with regard to planning your taxes.
My business accepts crypto
Businesses must book sales in AUD, and log a corresponding entry for the acquisition of any cryptocurrency, whenever recording a customer payment made via crypto. Any cryptocurrency accepted in this way is considered as trading stock.
When the currency is traded or sold, the sale must be recorded as a sale in AUD—as either a profit or a loss. Any disposal of crypto acquired by business sales will be likely to fall under GST, and will involve further requirements.
There exists a variety of cryptocurrency payment processors, allowing businesses to capture crypto payments and convert them into AUD instantly. Businesses are provided with wallets, payment monitoring, and conversion rates. Under this mechanism, businesses at no point actually capture cryptocurrency, and so may avoid any additional tax obligations beyond ordinary acceptance requirements.
Who can help you with your Australian crypto tax?
As cryptocurrency becomes more widely used for investment and payments, more accountants offer taxation services around it. We encourage you to consider seeking advice from an accountant.
To assist with this process, Ftplus partners with Koinly, who offers reliable crypto tax reporting to Australian taxpayers. Koinly provides software to help you keep track of your gains and losses, and easily convert transactions as they happen into their Australian dollar equivalent. By syncing your Ftplus account, Koinly both securely access your trading data to help estimate your crypto taxes.
Guide: How to sync your Ftplus account with Koinly to generate a tax report.
We also recommend using Ftplus’s free Australian crypto tax calculator to receive an estimate of the tax owed on the profit made from trading crypto.
How do I get my info from Ftplus
If you’re a Ftplus user, you can generate and download a transaction statement on both the Ftplus desktop and mobile applications. for a step-by-step guide on how to do this, check out the following articles:
If you’re having trouble with generating your transaction statement or have any more questions on how cryptocurrency is taxed in Australia, you can reach out to our online live support.
With cryptocurrency taxation guidance not yet a decade old, it’s understandable you would have questions about how to approach cryptocurrency and your tax return. This article has broken down the most common situations but when in doubt, it’s best to check with a registered tax accountant who deals with cryptocurrency.
Approved by In partnership with Koinly
Koinly is a tax calculator for cryptocurrency purchases and portfolio tracking tool that caters to investors and traders at all levels. As a tax calculator, Koinly is able to do a bunch of time saving reporting activities as well as indicate the potential tax implications of future activity. Just input your Ftplus transaction data (via API or CSV file upload) to identify your taxable transactions, as well as the type of tax that applies according to the ATO crypto tax rules.
Koinly will identify your cost basis, calculate your short and long-term capital gains and losses, and the fair market value of any crypto income in AUD on the day you received it.
Finally, Koinly generates an ATO compliant tax report which covers Ftplus and any other wallets you’ve synced, ready for download and filing.
Why choose Koinly?
- Generate a complete Crypto tax report outlining capital gains, expenses and various sources of income in under 20 minutes.
- Track your total holdings, growth and expenses year-round on a beautiful dashboard.
- Integration with 600+ exchanges, wallets and services or upload your transactions via CSV.
- ATO compliant and 3 Party audited.
- Easily invite your Accountant onto the platform for review and lodgement.
- Deeper integration in the blockchain than competitive offerings.
- 24/7 Customer Support and an Australian based team.
- An average rating of 4.6/5 from over 700+ reviews.
- Free signup
Go to Koinly and use the the code SFtplus22 to get 30% off your next Crypto Tax report
Disclaimer:
The information provided in this article is purely factual in nature and does not constitute tax advice, financial product advice or legal advice. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The examples given do not apply to your specific circumstances.
