Crypto-currencies Vs Shares: Tax Implications

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Crypto-currencies Vs Shares

We have all heard of Bitcoin by now, and with Shiba Inu coin (SHIB) currently in the spotlight with its stock rising 23.83% on 27th October we thought we would discuss the tax implications that go hand in hand with these substantial gains (and losses) for investors over short periods of time. When breaking down these tax implications, we can see that whether you are investing in shares or trying your luck with cryptocurrencies, the Capital Gains Tax (CGT) consequences are the same.

With the ATO warning that data from banks, financial institutions and online exchanges can and will be tracked back, by assisting you in understanding the tax obligations, we can hopefully help you to avoid any penalties you may face.

When you either dispose of cryptocurrencies or swap them, a Capital Gains event has occurred. As crypto is fairly new, many people are ill-informed about their requirements and believe if they swap their crypto or trade it, they don’t have to report it as part of their assessable income. In fact, you must keep record of every crypto transaction you make. This includes when you:

  • Exchange one cryptocurrency for another cryptocurrency
  • Trade, sell or gift cryptocurrency
  • Convert cryptocurrency to a government issued currency, for example Australian Dollars (AUD)

How to calculate the Capital Gains Tax (CGT)

First you must calculate your capital gain or loss: This is the difference between your cost base (purchase price of the coin plus any other associated costs in purchasing/ holding or disposing of it) and your capital proceeds (the amount you receive when you dispose of your cryptocurrency.)

All these calculations should always be converted back into AUD

The ATO generally does not consider holding of cryptocurrencies to be a personal use asset. There are some exceptions to this, including if you acquire it for less than $10,000, use it in a short period of time and you directly exchange it for items you personally use or consume. If these conditions are met, you may be disregarded for CGT purposes.

As with shares, if you hold your cryptocurrencies for a minimum of 12 months, you can reduce your Capital gain by 50% for tax purposes.

Hope this has helped those clients who have been following the crypto trend, however I must stress once again the volatile nature of cryptocurrencies and from my experience, how they carry more risks than reward. If you are thinking of investing, please get in touch with one of our experienced team members here at Smart Financial Advisory on 03 9034 4883.