Cryptocurrency has become a major focus in financial markets in recent years, offering a new perspective on the financial system. More and more central banks are studying digital currencies, but it's important to note that most countries do not recognize cryptocurrency as legal tender. Before July 1, 2017, the Australian government even applied a "double taxation" label to cryptocurrency, meaning that anyone using it for payments effectively paid Goods and Services Tax (GST) twice: once when purchasing the cryptocurrency and again when using it to buy goods or services. Since that date, however, buying and selling cryptocurrency has been exempt from GST, aligning its treatment with other financial products—though this doesn't mean Bitcoin is recognized as official currency.
This article explains how the Australian Taxation Office (ATO) regards this emerging asset.
What Is Cryptocurrency?
Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions. It serves as a medium of exchange, and popular examples include Bitcoin, Litecoin, Ripple, and Ethereum. Cryptocurrencies are decentralized, meaning there is no central bank, and the rate at which new units are generated is predetermined when the system is created.
The ATO’s Stance on Cryptocurrency
Given the rapid evolution of digital currencies, the ATO has been cautious in its approach. So far, it has provided only a partial definition, focusing mainly on Bitcoin and cryptocurrencies with similar features.
The ATO does not classify Bitcoin as money or foreign currency. Instead, it treats it as an asset subject to Capital Gains Tax (CGT). When it comes to transactions involving Bitcoin, the ATO considers them similar to barter arrangements. In business contexts, this means recording the transaction at its fair market value, which can be obtained from any reputable cryptocurrency exchange.
According to the ATO, a CGT event occurs when you dispose of your cryptocurrency. At that point, standard capital gains tax rules come into play.
What Counts as Disposal?
Disposal includes any of the following actions:
- Selling or gifting cryptocurrency
- Trading or exchanging it for other cryptocurrencies
- Converting it to fiat currency (like Australian dollars)
- Using it to purchase goods or services
Understanding Capital Gains Tax (CGT)
If you make a capital gain on your cryptocurrency, part or all of that increase in value may be taxable.
In some cases, cryptocurrency may be considered a personal use asset, which can exempt it from CGT.
If disposing of cryptocurrency is part of your business operations, any profit is treated as ordinary income rather than a capital gain.
Each type of cryptocurrency is considered a separate asset. For example, selling Bitcoin to buy Ethereum is regarded as disposing of one asset (a CGT event) and acquiring a new one.
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How Is the Value of Cryptocurrency Determined?
When a CGT event occurs, the value of the transaction must be recorded in Australian dollars. If valuation is difficult—for instance, in the case of a gift—the market price at the time of disposal is used and converted to AUD.
Is There a CGT Discount for Long-Term Holding?
Yes. If you hold a cryptocurrency for more than 12 months, you may be eligible for a CGT discount. If you incur a capital loss, it can be carried forward to offset future capital gains.
What Is a Personal Use Asset?
For individuals, using cryptocurrency to buy goods or services for personal consumption generally doesn’t trigger income tax or GST obligations.
If the value of the cryptocurrency is under A$10,000, any capital gain or loss from its disposal is usually disregarded—provided it is a personal use asset.
Cryptocurrency as Business Inventory
If you hold cryptocurrency as part of your business, it is treated as trading stock rather than a capital asset. This means the ATO’s inventory rules apply.
Examples of businesses that might hold cryptocurrency as inventory include:
- Bitcoin trading companies
- Cryptocurrency mining operations
- Crypto exchange platforms
Cryptocurrency as Business Income
If your business is not primarily focused on cryptocurrency but you accept or make payments in crypto, the ATO treats this as a barter transaction. The value must be recorded in your accounts as an asset. For more details, refer to the ATO’s Taxation Ruling IT 2688.
Paying Employees in Cryptocurrency
If an employee requests payment in cryptocurrency, two scenarios may apply:
- If there is a valid salary sacrifice arrangement in place, paying in crypto is considered a fringe benefit. Under the Fringe Benefits Tax Assessment Act 1986, the employer may be liable for fringe benefits tax.
- If there is no valid salary sacrifice arrangement, the payment is considered ordinary income. The employer must withhold pay-as-you-go (PAYG) income tax based on the Australian dollar equivalent.
Record-Keeping Is Essential
Whether you hold cryptocurrency as an investment, for business, or for personal use, maintaining accurate records is critical.
The ATO recommends keeping the following records for every cryptocurrency transaction:
- The date of the transaction
- The amount in Australian dollars (obtained from a reputable exchange)
- The purpose of the transaction
- The other party’s details (even if it’s only their cryptocurrency wallet address)
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Frequently Asked Questions
How does the ATO know about my cryptocurrency transactions?
The ATO uses data matching from cryptocurrency exchanges and other sources to identify taxpayers involved in crypto transactions. It is important to declare all relevant activity in your tax return.
Do I need to report cryptocurrency if I only use it for personal purchases?
If the cryptocurrency is a personal use asset and valued under A$10,000, you generally don’t need to report gains or losses. However, keep records in case the ATO requires evidence.
What if I trade one cryptocurrency for another?
This is considered a disposal event for CGT purposes. You must calculate any gain or loss based on the market value in AUD at the time of the trade.
Are there any GST implications when buying crypto?
Since July 2017, buying and selling cryptocurrency has been GST-free. However, other tax obligations like CGT may still apply.
Can I deduct losses from cryptocurrency trading?
Yes, capital losses can be offset against capital gains. If losses exceed gains, you can carry them forward to future tax years.
What records are sufficient for ATO compliance?
You should keep dated records of transactions, exchange values in AUD, wallet addresses, and the purpose of each transaction. Using a reputable crypto tax software can help automate this process.