Cryptocurrency Tax

Rizzy on 06/10/2017 - 20:24
Last edited 06/10/2017 - 20:36 by 1 other user

Hey OzBargainers,

I just wanted to know if anyone could assist me with tax associated with Cryptocurrency. I am not involved in it, however I am very eager to know what the rules are.

I am absolutely hopeless when it comes to tax/finance/accounting. I have read crypto related stuff on the ATO website however I am such a gimp, all I see is gibberish.

Can someone dumb it down for me. I have spoken to multiple accountants (4) who were referred to me however they do not know much themselves. They all asked me about my ABN and TFN I used when I "bought" crypto's - 1. You don't need tfn and abn to buy - to me that question suggests they do not know much about crypto's (unless I am majorly mistaken).

Anyway, can some one please assist me. Dumb it down for me.

Scenarios I would like to clear up - If I was to buy alt coins - Sell it at a profit of $200 and buy more alt coins that is now worth $10k (Profit) - how much is given to the ATO and how much do I keep.

Any help would be great!

Thanks!

Financial

Related Stores

Australian Taxation Office
Australian Taxation Office

Comments

  • Baysew on 06/10/2017 - 20:34
    +3

    Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.

    ATO doesn't seem to fussed as long as value is below $10k and it used to buy stuff with. So no tax payable.

    So I would buy something/anything and keep value under $10k. This should keep things sweet with ATO.

    If you are buying say $20k then you would have to pay capital gains tax (or make a capital loss) when you have sold.

    Extra rules for a business.

    Anyways keep good records of buying and selling.

    As for your example, a profit of (above) $10k would result in—
    If held for less than 12 months the full profit added to your Taxable Income
    If held for more than 12 months half the gain added to your Taxable Income

    • Rizzy on 06/10/2017 - 21:37

      Thanks very much!

      I was reading people making millions on cryptos..if you have to pay 32.5% tax (minimum 32.5%) and you made 1mil profit that's $325,000 paid to the taxman.

      Holy smokes.

      • Baysew on 06/10/2017 - 22:03

        If you made a profit of 1 million, why would you sell?

        • AlienC on 06/10/2017 - 22:38

          To turn it into liquid usable cash money? I don't know of many places that have started using bitcoins yet for everyday transactions while there are some it definitely hasn't hit mainstream yet like say for example PayPal.

        • garetz on 07/10/2017 - 04:35

          @AlienC: You do not have to technically "sell" the crypto for cash. If someone is willing you can use it as currency to purchase what you want with it. So you dont have to pay cash. Lets say you have 3 million worth of crypto, and you buy a house, the vender is willing to take the crypto as payment, then you pay no tax. Of course this is all theoretical at this point, as there are no real rules about this atm.

        • AlienC on 07/10/2017 - 04:49

          @garetz: very true.. I am just saying for me personally I would have no idea how to do it or where to do it.. I mean i guess I could ask on some bitcoin subreddits or forums but aside from not wanting to go to the deep web I would have no idea besides just asking every one or service online that I meet if they accept bitcoins.. I guess my question is is it more active and popular than I really think it is which is closer to none? I mean where I live now I can't see it taking off any time soon maybe more closer to the cbd definitely.

        • peterpeterpumpkin on 07/10/2017 - 10:28

          @garetz:

          The ATO states that even if you purchase an item for personal use (in which case we'll assume a house to live in since any "investment" bought with Bitcoin triggers CGT), if the acquisition of the original Bitcoin costs more than $10,000 AUD then you're still liable to pay CGT. And of course bartering doesn't affect your state's stamp duty tax (if owed).

          But otherwise, like you say, until a real world case study occurs the ruling is unknown. The reality is that the government can do what it wants when it wants. Any perceived loopholes can be closed the following year. And by requiring a detailed transaction history they're setting you up for non-compliance or fraud. In many cases your only hope is plausible deniability.

          The main risk for very early adopters who hit it big is triggering suspicion of illicit activities. Selling a pizza to a drug user for cash in 2013 probably arouses less suspicion than accepting Bitcoin for that same transaction.

          Just thought I'd emphasise how powerless people are when it comes to bartering laws. The government says you can barter goods for personal use CGT-free if the goods being traded are each perceived to have a fair market value of less than $5000. So I can have a stamp collection worth nothing to me that I can't be bothered finding a buyer for but it might be perceived to have a value of $20,000 when I trade it in for a 2005 Toyota hatchback worth $5000.

        • garetz on 07/10/2017 - 11:55

          @peterpeterpumpkin: The problem with this is, crypotcurrency has no intrinsic value. You cant barter what doesnt exist. Just cause someone is prepared to pay money for digital currency, doesnt meant its an asset class. There needs to be specific rules/laws made to govern this, otherwise its all theory atm. The ato is currently ignoring this, but the government needs to give cryptos the same status that the australian dollar has before it can be taxed, and make it officially recognised. Until then they can ban its use anytime they want.

        • peterpeterpumpkin on 07/10/2017 - 12:43
          -1

          @garetz:

          I used to try explain that last fact years ago on forums full of self-proclaimed libertarians and it was like speaking to a brick wall.

          People for whatever reason always assume technocratic revolutions will overthrow traditional or government-sanctioned systems since "they can't be stopped". A government can quickly bring an end to the local use of Uber, airbnb, Bitcoin, the internet and jaywalking by introducing the death penalty as punishment. But most governments realise that in a stable society they can use regulations and financial penalties to keep people in line, since people with everything to lose decide the risk isn't worth it.

          Should it all hit the fan in 15 years or so then risk-taking behaviour might grow immensely, which may lead to even tougher regulations and/or social revolutions. But Bitcoin itself, at least in its original form, is useless as everyday currency anyway. And a technocratic dictatorship is still a dictatorship.

    • [Deactivated] on 06/10/2017 - 23:50
      +2

      ATO regard cryptos as an intagible asset and subject to capital gains. Though the wording around this is very loose, and by name mentioned bitcoin.

      Issue one: no-one is keeping track of this - no brokers are holding your tfn; some don't even require your full name.

      Issue two: Once you venture outside the land of "bitcoin" and cryptos design for transacting value, the idea that a coin is directly tied to value can soon get lost.

      Issue three: icos (and smart contracts to a lesser extent); despite being issues regulatory guidelines, are the "wild wild west" of the economic world at the moment and are; in practice totally untaxeable. (in theory yes, from a practical perspective though, there is no facility for this).

      Issue four: Some coins are completely anonymous (monero etc).

      Issue five: Some coins, lisk eg; allows delegates to gain new coins for being a delegate. Again: no clear path for taxation.

      So what does this mean? It is really up to you. You should pay capgains on assets. But are all coins assets?

  • whooah1979 on 06/10/2017 - 20:39
    +1

    Cryptocurrency

    isn't this meant to be anonymous?

    • mskeggs on 06/10/2017 - 21:18
      +1

      Yeah, just like cash. But if you make a capital gain, the law says you have to pay CGT.

    • EightImmortals on 07/10/2017 - 09:05

      Anonymous 'in theory' but apparantly 'they' can track who sent what to whom. You can put your coins through a 'tumbler' but apparently that can tracked too if they wanted to put the effort in.

    • idonotknowwhy on 08/12/2017 - 10:45
      +1

      Most are not anonymous. Quite the opposite. Once you spend it with someone who knows you identity, every transaction you've ever made is visible.

      Only Zcash and it's shitcoin forks are really anonymous.

      • dust on 08/12/2017 - 11:21

        Monero, AEON are also anonymous.

        • idonotknowwhy on 08/12/2017 - 11:54

          Yeah, as is "DASH". But ZEC and it's forks look more reliable.

  • mskeggs on 06/10/2017 - 21:21

    The main consideration you need to be aware of is CGT.
    If you buy $100 of any coin, and sell it for $1000, you will be liable for $900 of capital gain, that is taxed at your marginal rate (less a discount if you hold more than 12 months).
    But perhaps more importantly, it also means if you buy $1000 worth of coins and you sell them for $10, you can offset the $990 loss against other capital gains you may have made.

    • mskeggs on 06/10/2017 - 21:26

      Your specific scenario:

      Scenarios I would like to clear up - If I was to buy alt coins - Sell it at a profit of $200 and buy more alt coins that is now worth $10k (Profit) - how much is given to the ATO and how much do I keep.

      If you made a $200 profit within 12 months, you would need to pay CGT at your marginal rate. Look up your income after deductions here:
      https://www.ato.gov.au/rates/individual-income-tax-rates/
      A person on the median income would 32.5c in the dollar, or $65 tax on your $200 profit.
      If you then buy coins (how much did you spend?) that are now worth $10,000, you will pay no tax. If they are still worth a lot when you sell them, you will pay CGT on the profit as you did for the $200 gain.

      • Rizzy on 06/10/2017 - 21:39

        Thank you for your help!

        So if I was to make $1,000,000 I would have to pay 45% to tax?

        • mskeggs on 06/10/2017 - 21:44
          +1

          Yes, a great problem to have!

        • AlienC on 06/10/2017 - 22:45

          @mskeggs: let's say I make $1000 net profit and receive $17000 in Centrelink benefits from newstart that's a total of $18000 income so because I am below the threshold does that mean I would pay no tax on it but if I made $10000 net profit instead I would have a total of $27000 net income and so pay whatever the marginal rate is in the $27000 income bracket which is 19c for each $1 over $18200 so $27000-$18200 = $8800

          $8800 * 0.19 or the 19 cents in every $1 = $1672 payable tax to the ATO

          Last question how do we send the money the payable tax income to the ATO is there a form can you do it online now or do I have to go to a post office?

          Sorry total tax noob here.

        • Rizzy on 06/10/2017 - 23:14

          @mskeggs:

          Wow hahahah!

          That is 'UGEEEE!

        • mskeggs on 07/10/2017 - 00:25

          @AlienC:
          From what I understand (I am not any sort of professional finance person) you would pay tax on the capital gain at your marginal rate as if the gain was added to your income.
          So if you earn little, and the gain keeps you under $18k total for the year, you will pay no tax.
          But if the gain pushes you into another bracket, I believe you pay the marginal rate on the whole capital gain. In your 2nd example, the $10k lifts you to the 19% bracket, so you would pay $1900 in CGT. Your PAYG income would be progressively taxed (so zero tax as under $18k).
          There are some rules around low income tax offsets that I'm not current on, and if you hold the asset for more than 12 months the tax bill gets a 50% discount.

          There are also some rules around accounting for gains as income if your occupation is a trader, but that wouldn't apply here with just one buy and sell.

          CGT is a good tax. Consider that you work your guts out and the government takes its share, but if you are rich enough for investments, and you get lucky and make a gain - really, I think that free and easy gain should be taxed more heavily than income. If it was, inequality in our community would be lower.

        • AlienC on 07/10/2017 - 04:24

          @mskeggs: most definitely.. the source of your income and how you got it is not considered in our current tax system and for good reason (mainly because it is hard to determine the nature of bthe income or gain imho) but small steps should be still taken imho to normalize and equalize this gap or "loophole" in the system.

          Maybe in a couple years this will happen but imho by then it will have been too late.. The culprits are gone haha lol as they always are.

        • garetz on 07/10/2017 - 04:37

          @AlienC: If you make 1k from selling bitcoin, you have to report it to centerlink, which will affect your payments, as it is considered income by them, they will reduce your payments relative to that 1k income.

        • owli on 07/10/2017 - 16:58

          You might be able to sell only enough to put you in a lower tax bracket lets say $180,000 at 37% and use a derivative maybe an option or a leverage short to hedge the rest, you are still holding the coins so you have not sold all, but your option or short will essentially lock in the price as if you sold it all.

          But you would have to do this for a couple of years… pain in the ass, but you could save 8% of 1 million, so $80,000 minus the option premium or short funding rates. OKEX futures are cheap AF, option's market is pretty non-existent at the moment I think.

  • peterpeterpumpkin on 06/10/2017 - 22:41
    +2

    Frankly, there's no legal way around avoiding CGT on assets purchased with the intention of making a profit. Reselling "personal" gift-cards and other purchases have only become more popular thanks to cryptocurrencies, which is the reason the government makes efforts to monitor money launderers on sites such as eBay and Gumtree.

    The ATO covers all bases by enforcing "market value" on all business transactions, even when bartering (aka the "arm's length principle"). Buying a house with Bitcoin? The house will be assessed at market value. And so will the Bitcoin. Since both the bitcoin and the house will be assessed at market value the buyer can't avoid paying stamp duty and both the buyer and seller can't avoid paying any capital gains that would be owed in an equivalent cash transaction.

    Made a million in bitcoin and thinking of leaving the country permanently and no longer being a resident for tax purposes? ATO has that covered too. When you renounce residency you effectively dispose of your assets at their market value, so CGT will be payable on this amount as well. But some new host countries may refuse to play ball.

    • Rizzy on 06/10/2017 - 23:14

      Pretty hectic to be honest.

      Good to know!

      • KevinFine on 05/12/2017 - 07:17

        I see what you did there ;)

  • renster72 on 06/10/2017 - 23:54
    +1

    Transacting with bitcoins is akin to a barter arrangement, with similar tax consequences.
    The ATO’s view is that Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.
    The records you require in relation to bitcoin transactions are:
    a. the date of the transactions
    b. the amount in Australian dollars (which can be taken from a reputable online exchange)
    c. what the transaction was for, and
    d. who the other party was (even if it’s just their Bitcoin address).

  • rgr on 07/10/2017 - 09:14

    this is shit, so basically there's no way to prevent the ATO from getting their grubby hands onto my wealth.

    • Rizzy on 07/10/2017 - 10:10

      exactly.

      Investors are stressing out everyday worrying about gains and then ATO just chilling - come and take a cut.

  • [Deactivated] on 07/10/2017 - 23:53

    If you made a capital loss, you can carry that loss forward and deduct it from your capital gains.
    https://www.ato.gov.au/General/Capital-gains-tax/Working-out…

    unless its a current income tax exempt item that has suddenly lost its exemption status.

    So if the ATO wants to Tax bitcoin, its got to let you carry that capital gains loss forward (which is going to be even worse to track) unless they track $$ enter and exiting all exchanges under your name.

Login or Join to leave a comment
Login Join