Cryptocurrency has evolved from a niche concept into a mainstream financial asset. Over the past decade, digital currencies like Bitcoin, Ethereum, and various tokens have gained widespread adoption. In Australia alone, over a million people now hold crypto assets, with significant interest across all age groups. While younger investors dominate in numbers, older Australians often hold larger average investments. Today, individuals invest through personal holdings, self-managed super funds (SMSFs), companies, and trusts, while others operate businesses directly involved in the crypto ecosystem.
What Are Cryptocurrency Assets?
Cryptocurrency assets are digital representations of value that can be transferred, stored, or traded electronically. This broad category includes both coins and tokens, such as:
- Bitcoin: The original and most well-known cryptocurrency.
- Stablecoins: Like USDC, which are pegged to stable assets.
- Investment Tokens: Such as DAI.
- Utility Tokens: Including game tokens like GALA.
- Non-Fungible Tokens (NFTs): Unique digital assets like Bored Ape Yacht Club (BAYC).
These assets are secured using blockchain technology—a decentralized digital ledger that records all transactions transparently and securely.
Tax Implications for Crypto Investors
For tax purposes, cryptocurrency assets are not considered currency. Instead, they are treated like other assets, and their tax treatment depends on how you acquire, hold, and dispose of them. There are no special tax rules for crypto; general tax principles apply.
For Investors
Most individuals hold crypto as an investment, aiming to profit from long-term appreciation or disposal. In this case:
- Crypto assets are classified as Capital Gains Tax (CGT) assets.
- Net capital gains from disposals are subject to tax after applying discounts and offsetting losses.
- Rewards from staking or holding cryptocurrencies are generally treated as ordinary income.
However, if the asset is held for personal use and meets specific criteria, it may be exempt from CGT.
For Traders
If you are actively trading cryptocurrencies, you might be considered a business. Key indicators include:
- Engaging in activities for commercial reasons and in a business-like manner.
- Having a profit-making intention or genuine belief.
- Operating in an organized, repetitive way—such as keeping records, following a business plan, and managing inventory.
High trading volume or complexity alone does not automatically classify you as a business.
Special Crypto Transactions
Chain Splits
If you receive new crypto assets from a chain split (e.g., Bitcoin Cash from Bitcoin), the value at receipt is not immediately taxed as income or capital gain. However, when you dispose of the new asset, you must calculate any capital gain or loss. The cost base for the new asset is typically zero.
Staking Rewards
As a validator or delegator in a proof-of-stake network, you may earn additional tokens. The market value of these tokens at the time of receipt is considered ordinary income and must be declared.
Airdrops
Similarly, the value of established tokens received via airdrop is ordinary income at the time of receipt and should be reported as other income.
Crypto in Business
Businesses engaged with cryptocurrency operate in diverse areas, including:
- Utility tokens and cryptocurrency exchanges.
- Digital wallets and payment systems.
- Security tokens, stablecoins, and DeFi (decentralized finance) projects.
- NFTs and asset-backed tokens.
- Crypto hardware like ATMs and related financial services.
Many IT companies develop their own tokens and blockchains or offer services to other enterprises. For businesses trading crypto assets, transactions are often treated as ordinary income or deductible expenses, rather than capital gains.
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Frequently Asked Questions
What is the difference between a coin and a token?
Coins like Bitcoin operate on their own blockchain, while tokens are built on existing blockchains and often represent assets or utilities.
How do I report crypto on my taxes?
You must declare income from staking, airdrops, and trading. Capital gains from disposals should be reported in the CGT section of your tax return.
Are NFTs taxed differently?
NFTs are generally treated as CGT assets if held for investment. If created or traded as part of a business, they may be subject to ordinary income tax.
Can I use crypto losses to reduce my tax?
Yes, capital losses from crypto can be offset against capital gains in the same year or carried forward to future years.
What records should I keep for crypto transactions?
Maintain records of dates, values, purposes, and parties involved in all transactions, as well as wallet addresses and exchange statements.
Is crypto legal in Australia?
Yes, cryptocurrency is legal and regulated for investment and business use, provided activities comply with tax and financial laws.