Crypto Tax Guide
What is cryptocurrency
The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain.
Cryptocurrency generally operates independently of a central bank, central authority or government.
Tax and digital currency
Initial coin offerings (ICOs)
The GST treatment of sales of new currencies or tokens including Initial coin offerings (ICOs) will depend on their particular features. Some ICOs may be designed to be a payment method, while others may offer a share of profits in a product, or provide access to a software application. Depending on the features of the particular token, the GST treatment may be:
- a security including a share or a managed investment scheme, or a derivative – the sale and purchase of these tokens will be a financial supply
- if not a security they may be digital currency based on the factors described above – the sale and purchase of these tokens will be a financial supply
- excluded from the definition of digital currency because the token provides a right or entitlement to goods and services– this may be a taxable supply on which GST is payable.
Digital currency in your business
You must register for GST if your GST turnover is $75,000 or more. GST turnover does not include input taxed sales. Sales of digital currency are input taxed sales. If you only make sales of digital currency you do not need to register for GST.
However, you may still choose to register for GST. In deciding whether to register you should consider:
- the increased time and cost of record keeping and reporting
- the fact that GST applies to taxable sales and you could claim GST credits for creditable purchases (if you make any)
- whether you can claim GST credits on your reduced credit acquisitions.
If your turnover is less than $75,000 (and you do not choose to register for GST) or if you only make input taxed sales of digital currency, you do not have to do anything in relation to GST. However, normal income tax rules still apply.
Sales of digital currency are input taxed sales (financial supplies) which means that you:
- don’t pay GST on the sales of digital currency you make
- generally can’t claim GST credits for the GST included in the price you pay for anything you purchase to make those sales.
However, you may be able to claim GST credits on purchases you use to make digital currency sales in following situations:
- if you don’t exceed the financial acquisitions threshold-in which case you will be entitled to full GST credits for purchases relating to digital currency sales
- if you exceed the financial acquisitions threshold may be able claim reduced GST credits if you make a specific type of purchase.
A reduced credit acquisition is a specified type of purchase for which a reduced GST credit is available when you use the purchase to make financial supplies. For these purchases you can claim 75% of any GST included in the purchase price. The type of purchase must be listed, you cannot claim 75% GST credits on all your costs. Sales and purchases of digital currency are financial supplies.
For digital currency sellers, the costs associated with the following services acquired from another entity will include:
- commission, brokerage costs or arranging services provided by entities that facilitate buying and selling of digital currencies.
- costs in relation to transaction processing, account maintenance and report generation services.
If, you are making sales of digital currency to non-residents, those sales will be GST-free.
As a result, you would not charge any GST on the sales to non-residents but you are entitled to claim full GST credits for costs incurred in relation to making those sales. Normal GST registration rules would apply.
No GST consequences arise when you use digital currency to pay for goods and services in your business.
Digital currency is a method of payment and the consequences of using it as payment are the same as the consequences of using money as payment.
If you receive digital currency as payment for your sales of goods and services normal GST rules apply. For example, if you make a taxable sale of goods for which you received digital currency as payment, you are required to remit 1/11th of the payment received for that taxable sale.
The amount of GST your remit and report on your activity statement has to be an amount of money in Australian currency.
If you make a taxable sale and the consideration received as payment is expressed in digital currency, in addition to complying with the standard tax invoice requirements under the GST law, you also must:
- include on the document the GST payable in Australian currency; or
- provide ‘sufficient information’ to the recipient to work out the GST payable on the sale in Australian currency.
Examples of sufficient information include:
- the price expressed in Australian currency
- the value expressed in Australian currency; or
- the GST payable, the price or value expressed in a digital currency and the conversion rate used by the seller, or a statement, to work out the GST payable in Australian currency.
Generally, when undertaking Bitcoin mining activities, it needs to be determined by analysis of your own activities as to whether this involves carrying on a business or not. If your circumstances are such that you are in the business of Bitcoin mining you will need to treat your activity the same way as any other business activity.
If you are carrying on a business of bitcoin mining:
All reporting to the ATO must be made in Australian dollars. To convert the value of Bitcoin to Australian dollars you can use the Bitcoin value as published by a reputable exchange on the date of the relevant transaction.
If you have undertaken some Bitcoin mining activities in a way that is not part of a business:
Your mined Bitcoin would constitute holding of an asset, and the Bitcoin you hold would be a be a capital gains tax (CGT) asset. This means that the CGT rules would apply. No deductions would be allowable. The CGT rules would need to be applied on the disposal of the Bitcoin.