Crypto Currency – The Taxman is Watching

By Joe Smith

The debate over crypto currencies, specifically bitcoin,  has been everywhere over the past few months however one thing that is very important that hasn’t been in the headlines so much is how they are treated for tax purposes in Australia.  The ATO are keeping a close eye on crypto currencies and are consulting with experts on how it should be taxed in the future. 

The current view of the ATO is that bitcoin is nether money or a foreign currency but is similar to a barter arrangement.  From 1 July 2017 the sale and purchase of bitcoin is not subject to GST.  If you are simply using bitcoin to purchase personal goods or services and you are not in business then there are no income tax consequences.  Further to this use, any capital or gain or loss will be treated as a personal asset if the cost of the bitcoin is $10,000 or less.

Where someone is mining bitcoin, this is treated as carrying on a business and as such any income from the transfer of bitcoin to a third party is assessable income.  Any expenses incurred in mining bitcoin are allowed as a tax deduction however non commercial loss provisions may apply.  And if bitcoin stock is held in this scenario it is treated as trading stock.

Finally, the most probable scenario is bitcoin acquired as an investment.  If you are not carrying on a business, any gains or losses will be subject to capital gains tax law with tax payable on any gains made and losses being available to offset against future capital gains.  However, regularly buying and selling bitcoin will most likely be treated as a business by the ATO subject to specific tests and criteria.

And remember the ATO are very resourceful and can look at your lifestyle and living expenses if you get audited and have not declared any capital gains or income.  If you queries on tax and crypto currencies, talk to the tax experts at Sothertons Gladstone on 4972 1300.