Has the crypto bubble burst or will it bounce back?
Either way… what are taxation implications of the virtual gains (or losses) you may have realised?
Late last year the Australian Taxation Office (ATO) published its guidance on the taxation treatment of crypto-currencies, specifically Bitcoin. These rules apply to Bitcoin and other similar crypto-currencies. The ATO’s view is the sale and purchase of Bitcoin is not subject to GST effective 1 July 2017 and Bitcoin is an asset for Capital Gains Tax (CGT) purposes. Let’s take a closer look:
Trading & Investing
If the acquisition is for personal goods and services and the cost is less than $10,000, any capital gain on sale will be exempt from income tax.
If the acquisition is made with the intention to make a profit (think: share trading), any gain will be included as assessable income and taxed at the taxpayer’s marginal rate. Equally, any loss will be deductible against ordinary income.
If the acquisition is an investment, held with a long-term view, the Bitcoin is subject to Capital Gains Tax. Any capital gain (after applying carry forward capital losses) will be taxed at the taxpayer’s marginal rate. Any capital loss, will be carried forward and offset against future capital gains. Note the gain may be reduced by 50% if the currency is held for greater than 12 months.
Currently, Bitcoin can be acquired by a Self-Managed Super Fund (SMSF) if:
- Sole purpose test is satisfied, that is the investment is for the sole purpose of retirement;
- The acquisition is in line with the investment strategy of the SMSF; and
- The SMSF deed allows for the investment.
Generally, any gains derived from the investment are taxed at 15% if held less than 12 months. If the investment is held for longer than 12 months, any gain may be reduced by a 33.33% discount, resulting in effective tax rate of 10%. If the Fund is in pension phase the gain may be tax free. Any losses are quarantined and offset against future capital gains.
If an individual is not in business and Bitcoin is used to acquire goods or services for personal use, there are generally no income tax or GST implications.
If Bitcoins are received as payment for goods and services, as part of a business or enterprise, the Australian dollar equivalent, is included as assessable income and taxed at the taxpayer’s marginal rate.
If Bitcoin is used to acquire goods and services to use in a business, a tax deduction is allowable, equal to the Australian dollar equivalent.
Normal GST rules apply to business transactions. That is, where Bitcoin is used to make payments for goods and services or Bitcoin is received as payment for goods and services, in ordinary course of business, it is treated the same as if cash were received or paid. Bitcoin is merely a method of payment.
The above is general in nature, please consult with a tax advisor in relation to your specific circumstances.