The content in this article is provided for general information purposes and is not tax, legal, investment or other professional advice. Readers should seek appropriate professional advice prior to making any decision.
A cryptocurrency trader in the eyes of the tax law is essentially anyone buying and selling cryptocurrency regularly with the intention to profit from short-term price fluctuations made over a matter of hours, days or weeks. This includes day traders, bot traders, those flipping ICOs on pump and dumps, and exchange price arbitragers.
Typically, those in this category will be carrying on a business. As a result, profits are 100% tax assessable, losses are 100% tax deductible (subject to certain rules, more on this below) and you may have GST compliance obligations.
Your disposals of cryptocurrency, whether into Australian dollars, USD, EUR, or into another cryptocurrency including USDT, are sales and need to be reported on your tax return.
Your purchases of cryptocurrency are considered a cost of sales and are claimable on your tax return. Cryptocurrency which the business owns is considered “trading stock”, and if you hold some cryptocurrency on 30 June (end of the financial year), then you also declare this on your tax return. Interestingly, when reporting closing cryptocurrency, you have a choice to declare it at cost or at market value, which can sometimes provide tax planning options to minimise tax.
If you incur costs as part of your trading business, then these are usually tax deductible. Examples can be Internet costs, trade subscriptions, accounting fees, home office use, and computer equipment.
If a trader makes a loss, then usually this is tax deductible. However, you firstly need to pass the non-commercial loss rules. If your other income is less than $250,000 then you will likely pass these rules, because your sales will exceed $20,000. However, if your other income is $250,000 or more, then it’s likely you will not pass these rules and the loss will not be immediately tax deductible but rather carried forward to future tax years where it may become deductible.
Regarding GST, although the government changed the law for cryptocurrency transactions, it is possible you may still have a GST reporting obligation. If all your cryptocurrency sales are within Australia, then you should not need to register for GST. However, if you sell $75,000 or more worth of cryptocurrency on overseas exchanges, then you are likely required to register for GST. Thankfully, you don’t need to collect GST, however, you will be required to lodge quarterly Business Activity Statements. Essentially this is a compliance burden for you and may result in limited GST refunds.
A key requirement for traders is, you need to have records of your trades. Not just the trade history which you can export from the exchange, but actual accounting records. By this we mean a set of easily readable accounts that record the date of trades, the cryptocurrency bought and sold, the dollars paid for those trades or the cryptocurrency used to purchase another cryptocurrency, a reference for the trade and the Australian dollar value of the trade based on the market value on that date. It’s very important you maintain these records and we highly recommend you set up a record keeping system at the beginning and continually keep it up to date. Otherwise, come tax time, you’ll probably have a fairly large accounting bill and less tax planning options which may limit the chance to minimise tax.
Finally, if you are a cryptocurrency trader, then you really should be reaching out to a specialist cryptocurrency tax accountant to review whether you should be conducting the business as an individual, or some other entity such as a company. It’s part of our day-to-day accounting services to provide such advice, together with handy tips for record keeping, and we encourage you to give us a call to explore how we can help you save tax.