Cryptocurrency owners must be aware of tax changes

Changes to Australia’s anti-money laundering rules have come into effect today, and will see cryptocurrency exchanges and transactions more susceptible to the scrutiny of the Australian Taxation Office (ATO), according to HLB Mann Judd’s Peter Bembrick

Bembrick, tax partner at HLB Mann Judd Sydney, said the rules would catch cryptocurrency owners by surprise, and ignorance is not a defence for failing to pay the appropriate tax.

Bembrick said to avoid falling foul of the ATO, cryptocurrency owners should know that the ATO teats cryptocurrency as an asset for tax purposes, and, as such, the price in Australian dollars will change over time.

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There is also a taxable capital gain when a cryptocurrency unit is sold for more than the purchase price, and a capital loss when it is sold for less.

“The capital gain or loss needs to be recorded on the personal tax records, just as any other investment such as shares,” said Bembrick. “For Australian residents who have held the cryptocurrency for at least 12 months, a 50 per cent CGT discount can be claimed, meaning they only pay CGT on half of the actual gain.”

Bembrick also said it may be possible to claim a personal use exemption if it could be shown that the cryptocurrency was acquired purely to hold and then exchange for other goods and services, and not with the intention of making a profit in the course of carrying on a business.

Bembrick warned that the question of intention could be quite subjective, however, and “is not always easy to prove.”

People must also keep records of their purchases and sales of cryptocurrency and tax remains payable if someone has paid for goods and services in cryptocurrency.

“The ATO views this in just the same way as being paid with other goods or services, that is, as a form of barter arrangement,” said Bembrick. “The taxable amount is the AUD value of the non-cash consideration for the goods or services at the time of the transaction.”

“Similarly, if cryptocurrency is used to pay for goods and services in the course of carrying on a business, the AUD value of the payment would be treated for tax purposes in the same way as if you had paid the equivalent amount in cash,” he said.

Bembrick said the ATO would also treat “mining” cryptocurrencies like Bitcoin as a business, and the value of units acquired would be assessable income in the year of acquisition.

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