What you need to know about Bitcoin tax implications and other crypto-currencies
Over the past few months, the Bitcoin internet currency has made news headlines, as it’s exchange rate experienced a quick rise and then slight fall. The use of Bitcoin has been growing at a fast rate with people making significant paper and digital gains. But what happens on a tax front when your Bitcoin suddenly pays big digital dividends? Should you class it as a hobby, a business revenue stream, or a capital gain? The Bitcoin tax implications can be difficult to navigate, so our Accountants have complied an information sheet to assist you this Tax Season.
From the ATO’s point-of-view, Bitcoin and other similar crypto-currencies can be treated as money, trading stock or capital. As it can be seen as a source of income, you may need to declare it on your next tax return. Please note the below information is general information and that you should seek personalised advice from your accountant or tax professional.
What about income from Bitcoin?
The way the ATO treats income from Bitcoin depends heavily on how the income is generated.
- Bitcoin received in exchange for goods and services:
If you receive Bitcoin for goods and services provided as part of your business, you will need to declare the income in Australian dollars as part of your ordinary income.
- Income generated from Bitcoin exchange:
When you buy and sell Bitcoin as an exchange service, Bitcoin is treated the same way as trading stock and will incur related Bitcoin tax implications. Alike stock trading businesses, deductions are available for expenses that are necessarily incurred for the exchange service. These include acquisition of Bitcoin for sale, coin base fees and other expenses related to the Bitcoin transaction. The proceeds you derive from the sale of Bitcoin are included in your gross income, but would be treated as capital gains. These capital gains will be reduced by any amount that is included in the taxpayer’s assessable income under another provision of the tax law, such as ordinary income.
How should I declare Bitcoin-related income in my tax return?
As stated in TD2014/26, “in the case of an isolated transaction that is not carried out as part of a business operation, the Commissioner considers that a gain will generally be ordinary income”. Determination whether a transaction is an isolated or commercial one is based on relevant criteria, listed in Tax Ruling 92/3. This can be found in the ATO’s legal database
To be specific, in a Bitcoin transaction, factors taken into consideration are the amount of money involved in acquiring or disposing of the Bitcoin, the amount of profit, the length of time the Bitcoin is held for and whether that Bitcoin has no other immediate use other than as an object of trade.
What records do I need?
We normally require the following information to work out tax implications from your bitcoin transactions:
- The date of the transactions
- The amount of Australian dollars (this can be taken from a reputable online exchange channel)
- What the transaction was for
- Who the other Bitcoin party was
Declaring income from Bitcoin might be confusing in some cases. Whether you are in a Bitcoin trading business or simply thinking of selling your Bitcoin while the market for this crypto-currency is increasingly active, we recommend that you seek professional advice about tax implications on your moves.
With experience in helping our clients in this field of crypto-currencies, we believe that our staff at MAS Tax Accountants Canberra will be able to provide you with the best tax advice and customer services for your crypto currency transactions.
Learn more about our Canberra office, including the Tax, Accounting and Business services that we provide.
For more information or to make an appointment, please contact us below or call us on 1300 627 829
