Transacting with cryptocurrency
A CGT event occurs when you dispose of your cryptocurrency. A disposal can occur when you:
- sell or gift cryptocurrency
- trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
- convert cryptocurrency to fiat currency (a currency established by government regulation or law ), such as Australian dollars, or
- use cryptocurrency to obtain goods or services.
If you make a capital gain on the disposal of cryptocurrency, some or all of the gain may be taxed. Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded.
If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.
While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.
Exchanging a cryptocurrency for another cryptocurrency
If you dispose of one cryptocurrency to acquire another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. Because you receive property instead of money in return for your cryptocurrency, the market value of the cryptocurrency you receive needs to be accounted for in Australian dollars.
If the cryptocurrency you received cannot be valued, the capital proceeds from the disposal are worked out using the market value of the cryptocurrency you disposed of at the time of the transaction.
Cryptocurrency as an investment
If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency.
You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.
If you hold the cryptocurrency as an investment, you will not be entitled to the personal use asset exemption. However, if you hold your cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount to reduce a capital gain you make when you dispose of it.
If you have a net capital loss, you can use it to reduce a capital gain you make in a later year. You cannot deduct a net capital loss from your other income.
You must keep records of each cryptocurrency transaction to work out whether you have a made a capital gain or loss from each CGT event.
Personal use asset
Some capital gains or losses that arise from the disposal of a cryptocurrency that is a personal use asset may be disregarded.
Cryptocurrency is a personal use asset if it is kept or used mainly to purchase items for personal use or consumption.
Cryptocurrency is not a personal use asset if it is kept or used mainly:
- as an investment
- in a profit-making scheme, or
- in the course of carrying on a business.
Where cryptocurrency is acquired and used within a short period of time, to acquire items for personal use or consumption, the cryptocurrency is more likely to be a personal use asset.
However, where the cryptocurrency is acquired and held for some time before any such transactions are made, or only a small proportion of the cryptocurrency acquired is used to make such transactions, it is less likely that the cryptocurrency is a personal use asset. In those
Except in rare situations, the cryptocurrency will not be a personal use asset:
- when you have to exchange your cryptocurrency to Australian dollars (or to a different cryptocurrency) to purchase items for personal use or consumption, or
- if you have to use a payment gateway or other bill payment intermediary to purchase or acquire the items on your behalf (rather than purchasing or acquiring directly with your cryptocurrency).
The relevant time for working out if an asset is a personal use asset is at the time of its disposal.
During a period of ownership, the way that cryptocurrency is kept or used may change (for example, cryptocurrency may originally be acquired for personal use and enjoyment, but ultimately kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business). The longer a cryptocurrency is held, the less likely it is that it will be a personal use asset – even if you ultimately use it to purchase items for personal use or consumption.
Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded.
Loss or theft of cryptocurrency
You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen.
In this context, the issue is likely to be whether the cryptocurrency is lost, whether you have lost evidence of your ownership, or whether you have lost access to the cryptocurrency.
- when you acquired and lost the private key
- the wallet address that the private key relates to
- the cost you incurred to acquire the lost or stolen cryptocurrency
- the amount of cryptocurrency in the wallet at the time of loss of private key
- that the wallet was controlled by you (for example, transactions linked to your identity)
- that you are in possession of the hardware that stores the wallet
- transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.
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