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Three Tax Tips Must Know When Trading Crypto

Under Corporation Act 2001 (Cth), Cryptocurrency is categorised as a financial product. If you’ve bought, sold, or traded any goods in cryptocurrency you have a tax obligation to retain the record.

Cryptocurrencies are also known as virtual currencies or digital currencies. There are many different types of cryptocurrency such as Bitcoin, Tether, Ether, and so on which are created from encrypted data blocks. Bitcoin was the first blockchain created. 

Accountants should always verify with their clients about cryptocurrency activity.

Three effortless steps as a cryptocurrency investor are briefly described below;

Disposal of cryptocurrency

You must report the disposal of cryptocurrency to a fiat AUD. In short, disposal can occur when the sale, trade, currency convertor use of cryptocurrency to obtain any goods or services takes place.

If you transfer a cryptocurrencies wallet to a wallet it is not considered disposal. However, if holding reduces during this transfer, the network fee would be considered as disposal and would be a consequence of capital gain. 

The disposal of cryptocurrency is under the CGT provision, and it has to be in Australian dollars.

Under the act of Australia is the Australian Dollar is the only recognised form of payment besides any other currency.

Calculating capital gains tax (CGT) on cryptocurrency

The capital gain or loss is the difference between the cost base (money or market value of any property received by the taxpayer in respect of the disposal) and the capital proceeds (market value of any other property the taxpayer gives in respect of obtaining cryptocurrency).

 You will be entitled to a CGT discount of 50% if cryptocurrency is held for 12 months or more to reduce a capital gain when you make a dispose of it. Where holding for less than 12 months the whole capital gain will be included in assessable income.

The gains on cryptocurrency qualifying as a personal use asset are tax-free where the cost of investment is less than $10,000.

ATO data analysis shows that over 600,000 taxpayers have invested in crypto assets in recent years.

Keeping records

Your transactions related to Acquiring, Owning and Disposing must be recorded at least for five years, even after disposing of cryptocurrency. When acquiring cryptocurrency, remember to keep either the records of receipts of transactions, documents that display 

  • The cryptocurrency
  • The purchase price in Australian dollars
  • The date and time of transaction and
  • What was the transaction for.

You also needs a record showing 

  • Commission or brokerage fees on the purchase
  • Agent, accountant and legal costs and 
  • Exchange records.

Owning cryptocurrency, taxpayers need to remember to keep

  • Software cists related to managing your tax affairs
  • Digital wallet records and keys
  • Documents showing the date and quality of cryptocurrency received via staking or airdrop.

You need to keep receipts of sales or transfers, or documents that display during disposal

  • The cryptocurrency
  • The purchase price in Australian dollars
  • The date and time of transaction and
  • What was the transaction for.
  • Commission or brokerage fees on the purchase
  • Agent, accountant and legal costs and 
  • Exchange records
  • Calculation of capital gain or loss.

On the contrary, transactions that are performed with foreign cryptocurrency may have tax responsibility in a different country. 

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