Cryptocurrency – investment or personal asset?

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• Tax

Are you dabbling in Cryptocurrency? Or are you a serious investor? Either way, Cryptocurrency is treated as a financial investment – and must be taxed depending on how the asset is “used”.

The ATO regards cryptocurrency like shares or any other capital gains tax (CGT) asset and therefore treats it accordingly.

“A CGT event occurs when disposing of cryptocurrency. Events can include selling cryptocurrency for a fiat currency, exchanging one cryptocurrency for another, gifting it, trading it or using it to pay for goods or services.”

Australian Taxation Office

If you have not exchanged your cryptocurrency for fiat currency you may think the ATO is unaware of your cryptocurrency finances, however this is not the case.

In fact the ATO began collections records from Australian cryptocurrency Designated Service Providers (DSPs) in May 2019 to ensure individuals were tax compliant.

These DSPs include anything from cryptocurrency exchanges, payment facilitators, brokerage services and more.

Disposing of your long term investment

Like any investment, purchasing cryptocurrency can be a long-term play – with the hope it gains value over time. It can be a risky investment, but also potentially profitable.

When it comes time to dispose of cryptocurrency, CGT will apply. “Disposing” of cryptocurrency can be regarded as any of the following actions:

• Trading or exchanging, most typically in the form of disposal of one cryptocurrency for another
• Converting cryptocurrency to fiat currency, such as the Australian dollar
• Using cryptocurrency to purchase goods or services
• Selling or gifting cryptocurrency

Did you know? Holding cryptocurrency for 12 months or more may entitle you to a 50% CGT discount to reduce any capital gains made when it comes time to dispose of it.

Cryptocurrency as a personal use asset

CGT assets that are used for individual use or enjoyment (not investment purposes) are regarded by the ATO as “personal use assets.”

According to the ATO website, cryptocurrency is not a personal use asset if it is kept or used mainly:

• As an investment
• In a profit-making scheme
• In carrying on a business

Delving further, what deems an investment in cryptocurrency over personal use?

The answer to this is how long the cryptocurrency has been held for at the time of disposal. The longer it is held, the less likely it will be a personal use asset – even if you are ultimately using it for personal use or consumption.

Questions to ask

To help decide if you are investing, trading or using cryptocurrency as a personal use asset, answer these eight questions from the ATO website:

1. How did you receive the cryptocurrency?
2. When did you receive it?
3. Why are you holding it?
4. How long will you keep it?
5. What will you do with it?
6. Did you receive any income from it?
7. How much is it worth in Australian dollars?
8. When did you sell or dispose of it?

Still unsure of your CGT asset tax requirements on your cryptocurrency investment? Book your obligation free chat with the experienced team at Elevate Accounting HERE