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With more and more Australians becoming invested in cryptocurrency, you can bet that they’ll have a whole lot of questions for you as an accountant come tax time.
Common crypto tax questions and how to answer them
10 June 2022
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4 minute read
Whether your client is a hardcore crypto trader or has just begun to dabble in buying and selling crypto, you’ll need to know how best to advise them as an accountant come tax time. Let’s dive into the most frequently asked questions you might receive from your clients who have crypto!
Question #1: “Is crypto taxable in Australia?”
We’re starting off with a simple one here, and the answer is yes. According to the ATO, “if you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances.” Crypto activity is taxed with either capital gains tax (CGT) or income tax, depending on the specific type of activity undertaken by your client.
Question #2: “What type of tax do I have to pay on my crypto activity”?
As mentioned above, the type of tax incurred will depend on the nature of the crypto transaction. The ATO has outlined that CGT will be applicable when your client:
- Sells or gifts their crypto
- Swaps their crypto for another crypto
- Converts their crypto into fiat currency
In comparison, the ATO has outlined that income tax will be applicable when your client:
- Receives staking rewards
- Receives an airdrop
If the prospect of manually keeping a record of all of your client’s crypto activity as listed above seems daunting, don’t stress just yet. You can use crypto tax software like CryptoTaxCalculator to maintain their record keeping. In the platform, transactions are tracked for cost basis and fees, then auto-categorised as sells, swaps, airdrops, etc.
Question #3: “But I didn’t cash out on my crypto, I just swapped some BTC for ETH!”
You might get a client or two who are adamant that a crypto to crypto swap is not a taxable event. They may argue that they didn’t technically ‘sell’ their cryptocurrency, and as such, shouldn’t have to pay capital gains tax. As per the ATO’s guidelines, however, a crypto to crypto swap is considered a disposal event. This means that these types of transactions are taxable and must be recorded for tax purposes.
Question #4: “What if I got paid in crypto at my job?”
As the web3.0 world continues to rapidly evolve, more and more job opportunities are arising that offer crypto as the single source of compensation. If your client has been remunerated with cryptocurrency instead of, for example, Australian dollars, these crypto transactions will be treated as ordinary income. However, if your client has received crypto as a bonus on top of their normal salary, then this will be treated as a fringe benefit.
Question #5: “Can I deduct expenses for my cryptocurrency activity at tax time?”
Much of what will or won’t be considered deductible for your client is determined by their trading status: if they’re a hobby trader or trading crypto as a business. In the instance of hobby crypto trading, expense deductions aren’t currently allowed by the ATO. In the instance of trading crypto as a business, the ATO allows for certain deductions to be made.
Question #6: “But I didn’t know crypto was taxable, so I haven’t done my taxes for several years! Will I be penalised?”
If your client wasn’t aware that they had to pay their crypto taxes, it’s okay. What you can do is work alongside them to amend their submissions for previous tax returns to include any capital gains, losses and/or income earned. CryptoTaxCalculator gives you and your client the ability to view records from financial years dating back to 2013, which should make the process much easier!
All in all, crypto taxes can seem intimidating, but they don’t have to be! If you have clients who have traded with crypto, you can use a crypto tax software like CryptoTaxCalculator to make both of your lives easier. Visit our website to try out our free Accountant portal.
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