Advice from a tax expert on how to claim crypto losses for tax calculation and how to calculate capital gains.
So you bought some crypto. You’re not alone. While the statistics aren’t exact, some surveys show that up to 21% of Australian adults now own crypto assets (and over 8% have owned them in the past).
If you manage to make money in the past year, you may have to pay extra taxes. Or you can use the losses to make up for other gains you’ve made. The hardest part is calculating those gains or losses. It doesn’t just depend on when you convert your crypto assets to Australian dollars. Each transaction – or what tax officers call a “transfer” – triggers a tax point. So you need to keep track of these.
How do tax authorities handle crypto assets?
The Australian tax office treats crypto holdings like other investment assets, such as shares in a company or real estate. In general, if its market value (in Australian dollars) when you liquidated your cryptocurrency was higher than when you bought it, then you received a capital gain. If it’s lower, you’ve made a loss.
Capital gains tax is different for businesses and professional traders. But for individuals – “parent” investors – the bottom line is that capital gains tax is essentially the same as income tax. A capital gain is added to your taxable income, and therefore, to the income tax you owe. A capital loss can be offset against capital gains, but not on other taxable income. If you have no capital gains in a given year, the loss can be carried forward to a future year.
So the key question is how to calculate your net capital gain – by calculating capital gain or loss for each “taxable event”.
How to record my gains (or losses)
In general, from the point of view of the tax authorities, a taxable event occurs whenever you process or transact with cryptocurrencies, whether it is payment for goods or services, exchange them with another crypto-asset, to give or convert them to cash.
The big exception to this is if you use cryptocurrency like real money, to buy goods for personal use – such as a meal, concert tickets or white goods for your home. If you use crypto to buy a personal use property for less than AU$10,000, you can often forego the capital gain. This is called a personal use waiver.
However, there are regulations on this to prevent systematic gambling.
The longer you hold crypto, the more likely the tax authorities will consider it an investment and deny the exemption. It does not provide any specific timeframe, but the example on its website mentions more than six months to indicate that the cryptocurrency is held as an investment. For everything else, any cryptocurrency handling is a taxable event, even if it doesn’t involve conversion into fiat currency (in our case Australian dollars). ).
Calculating capital gains
Consider a situation where you have decided to trade one crypto asset for another.
Let’s say you bought the world’s second-largest cryptocurrency, Ether, for A$1,000 at the end of 2020, when it was trading at around A$1,000 per unit.
At the beginning of 2023, when the market value of Ether hits AU$3,000, you decide to trade everything for the world’s largest cryptocurrency, Bitcoin (perhaps because you think Bitcoin has a better long-term outlook). ).
This transaction will not involve Australian dollars – but the tax authorities will still require you to report capital gains as if they did.
So what is the capital gain on this hypothetical trade?
It is the difference between the market value (in Australian dollars) of Ether when purchased (AU$1,000) and the market value of Bitcoin purchased (AU$3,000). The capital gain will be AU$2,000.
Do I have to pay taxes on all my capital gains?
Actually not, as long as you have owned the property for at least 12 months. For any property held for more than 12 months, you only pay taxes on half of the gain – what taxpayers describe as a 50% reduction. (This is a controversial reform introduced by the Howard government in 1999.)
So continuing with the Ether-Bitcoin scenario above, since you’ve owned Ether long enough this transaction will only add AU$1,000 to your taxable income, instead of AU$2,000.
You fill out this information on your tax return by answering the key questions outlined in question 18 of your personal income tax return.
Can crypto tax software help?
There are online apps that can help you with your capital gains calculations. They usually charge a fee, usually based on activity level.
They are especially useful if you trade often or have a lot of crypto wallets. However, you still need to double-check the results before relying on that to file your tax return.
The calculator works by importing data from your digital wallet. Then, based on the quantity, value, transaction time and exchange rate, they calculate your net profit for the year. However, they may not take into account items such as non-taxable liquidations. You may need to manually add more information – and it is your responsibility to ensure that you are reporting it correctly to the tax authorities.
What if I don’t declare?
The tax authority admits that the complex nature of cryptocurrencies can lead to a real lack of awareness of tax obligations, and that the anonymous nature of cryptocurrencies “could make it attractive to those want to evade their tax obligations.”
But don’t think you can get away with not declaring your income. Tax authorities have many ways to match data from sources such as digital exchanges to identify possible tax evasion.
In recent years, he has warned hundreds of thousands of taxpayers about shortcomings in their tax returns.
If it turns out that you have underestimated your tax liabilities, you will have to pay the debt, as well as interest and penalties.
If you need tax advice, consult a registered tax agent.
The content of this article is for general information only. It is not professional, legal, or tax advice. You should consult an accountant or other appropriately qualified professional for this. Any reliance by you on the information provided is at your own risk. Tax laws and the location of the Australian Taxation Office are subject to change in the future and retroactively 카지노사이트.