Crypto tax for individual investors - beware CGT on your digital assets

Bought, sold or swapped crypto this year?

The ATO treats digital assets as far more than internet curiosities, and if you hold them as an investment, capital gains tax (CGT) is almost certainly part of your tax story. Here’s what you need to know before you lodge.

Crypto is a CGT asset

The most common use of crypto is as an investment, in which case the crypto asset is a CGT asset. That means the same broad CGT principles that apply to shares and property also apply to your digital holdings.

If you acquire a crypto asset as an investment, transactions such as disposal, exchange or swap are CGT events and you may make a capital gain or capital loss.

If you hold crypto as an investment, it will not qualify as a personal use asset. The personal use exemption from CGT is only relevant where the crypto is mainly kept or used to buy personal-use items and was acquired for $10,000 or less.

Working out a gain or loss

The starting point is straightforward. You will make a capital gain if the capital proceeds from the disposal of your crypto asset are more than the cost base.

Because crypto is priced in a range of currencies, to work out the value of your crypto assets when you acquire or dispose of them you will need to convert their value to Australian dollars. For example, since 1 January 2020, the ATO has used the exchange rates from the Reserve Bank of Australia.

Longer-term holders may also benefit from a valuable concession. You may be able to reduce capital gains using the 50 per cent CGT discount if you hold your crypto asset for at least 12 months.

Losses have limits

Not every trade pays off, and the rules around crypto losses can catch investors out.

You can't deduct a net capital loss from your other income. A capital loss can only be applied against capital gains, either in the current year or carried forward.

Records are everything

Good records make crypto reporting far less stressful. To work out if you made a capital gain or capital loss from each CGT event, keep records for each crypto asset and your transactions.

Useful details to capture include:

• the date of each transaction;

• the value in Australian dollars at the time;

• what the transaction was for; and

• details of the other party, such as a wallet address.

The ATO is watching

If you are wondering whether the ATO can see your crypto activity, the answer is yes.

The ATO's crypto asset data-matching program matches what you report in your tax return with data on crypto asset transactions and accounts from designated service providers. This helps them identify the buyers and sellers of crypto assets and quantify transactions.

Leaving crypto off your return is a risk that is increasingly likely to be noticed.

How to report

If you lodge through myTax, use the current-year Capital gains or losses instructions. Companies, trusts and super funds have different reporting requirements.

Talk to our team

Crypto tax can get complicated quickly, particularly where swaps, staking rewards, chain splits or decentralised finance (DeFi) activity are involved. A later disposal of the crypto asset may also have CGT consequences.

Please get in touch to review your position, make sure your reporting is accurate, and confirm you are claiming every concession you are entitled to.