Cryptocurrency Investment

Hodlers, traders, flippers, bot operators, personal use – this is the page for you

So you have some crypto, maybe done a few trades, maybe spent it to buy a lambo – what are the tax consequences?

First off the rank… crypto to crypto trades are taxing events

We’re sorry to be the bearer of bad news, but every time you exchange one cryptocurrency for another, you’re triggering a taxing event. So, next time you’re exchanging say dash for ether, you’ll know the tax man might want his cut. They do say the only two things guaranteed in life are death and taxes. Our advice, seek tax planning assistance at the beginning to minimise tax at the end.

Hodlers vs Traders

Hodlers, aka Investors, are taxed differently to traders, so it’s important to work out where you sit. You might have a foot in both camps.

  • Hodlers

    A hodler is someone who has purchased cryptocurrency as a long term investment. They’ve bought cryptocurrency with the intention of owning it for a long time – usually years. They typically have a dual motive of wanting to make a profit from price appreciation (of course!) but are also really interested in the underlying blockchain tech and want to see it change the world by providing a product which has never existed before, or simply done much better by use of the blockchain (cut out the middleman).

    If you’re a hodler, then broadly speaking this is how you’re taxed:

    • Gain made on crypto sale that was owned for less than a year – 100% tax assessable
    • Loss made on crypto sale – is not an outright tax deduction, but will offset gains made on other long term assets (whether in the same year or future years)
    • Gain made on crypto sale that was owned for more than a year – 50% tax assessable, 50% tax-free (winning!)
  • Traders

    A trader is someone who is trading in and out of cryptocurrency seeking to make a profit from short-term price movements. This includes those taking advantage of price arbitrage across exchanges; those utilizing technical analysis - day/swing traders; bot traders; those flipping ICOs on pump and dumps; etc.

    If you’re a trader, then broadly speaking this is how you’re taxed:

    • Profit – 100% tax assessable
    • Loss – 100% tax deductible (subject to passing non commercial loss rules)
    • You may also have GST compliance obligations

    For a more detailed explanation see:

    What are Australian tax issues for cryptocurrency traders?

Personal use

You’ve worked out…. Hey, this cryptocurrency, it’s got “currency” in the name, perhaps I’ll go buy something with it. Bitcoin was born to be Electronic Cash and more and more we’re seeing businesses start accepting cryptocurrency, intermediaries providing a service to pay AUD bills with crypto, and even the ability to load a debit card and then buy things with it. Every time you dispose of cryptocurrency there is a taxing event and here the big question is: do I need to pay tax when spending my cryptocurrency?

Yes! Well, yes in most cases. There is this thing in tax law called the “personal use exemption” and maybe, just maybe it applies, which if so then disposal of cryptocurrency is tax-free. However, it rarely applies so don’t get your hopes up.

If you’re like us, you want to pay as little tax as legally possible.

Step one is to understand the basics of how you could be taxed. Step two you should approach a specialist accountant to review your circumstances. Why?

Because there is usually far more we can do to help you save tax down the road when you engage us at the beginning.

We await your call.