What is one of the hottest topic these days in money market? Cryptocurrency, or Bitcoin as the best known brand of all.
So, how is it tracked by the government and taxed by ATO? It is certainly not out of reach of the tax system and there are rules about that too.
Recently AUSTRAC has issued new guidelines to fight anti-money laundering and terrorism financing. Digital Currency Exchange Register is a part of these measures. The new rules mean that cryptocurrency exchanges will need to sign up to the register and transactions exceeding $10,000 must be reported to AUSTRAC in line with the existing rules for bank transfers and cash transactions.
By this move, the government agencies are seeking to close out the tax loopholes. So the members of community need to understand the tax implications when dealing with cryptocurrencies.
From ATO’s point of view, cryptocurrency is an asset for Capital Gains Tax (CGT) purpose.
First of all you need to keep a record of:
- The date of your transactions
- The amount in Australian dollars
- The purpose of transaction
- Details of the other party.
For example, if you use the bitcoin to buy goods and services, like you do with real money, there is not tax for the gain or loss from disposal of bitcoins, as long as the cost of bitcoin is less than $10,000.
Secondly, if you receive bitcoins for the goods or services you provided, the business may be charged GST on bitcoins.
A third scenario is about the employees who have valid salary sacrifice agreements with their employers, to receive bitcoins as remuneration instead of Australian dollars. In this case, the payment of the bitcoin is a fringe benefit and the employer, is subject to the provisions of the Fringe Benefits Tax Assessment Act.
The fourth case is bitcoin mining. When you are in the business of mining bitcoin, any income you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income and relevant expenses are deductible. For you, bitcoins are trading stocks. Remember, GST is payable on the supply of bitcoin you mined.
When you are carrying on a business of buying and selling bitcoin as an exchange service, the proceeds you derive from the sale of bitcoin are included in your assessable income. Any expenses incurred in that respect, are allowed as a deduction. Again, in this business, bitcoins are your trading stocks. And the GST is applied too.
Lastly, if you just invest on cryptocurrency and dispose them after a while to make profit, you will pay capital gains tax in the same manner that you sell any other investment.
ATO is also quite sensitive and strict on Self Managed Superannuation Funds (SMSF) that involve in acquiring or disposing of cryptocurrency. SMSF’s have to maintain records in relation to every single transaction. The trustees and the auditors need to be extra cautious in this field of investment.