Crypto Tax Bookkeeping
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The ATO, Crypto Tax and Crypto Bookkeeping
The ATO loves crypto and in 2020 was tracking over 350,000 Aussies with crypto holdings. The ATO has made it clear that like any form of investment every transaction must be properly recorded.
And as you may know a single order could contain hundreds of individual transactions, so its common for people to have thousands of transactions. Now throw in DeFi loans with wrapped coins, staking and airdrops then it gets really complicated and time consuming. We know we deal with it daily and have the tools to get it done.
The following information is not tax, legal or financial advice. As the ATO’s treatment of cryptocurrency is constantly changing you must seek proper tax and legal advice, that means don’t relay on what you read call and discuss your current circumstances.
Crypto Record Keeping
It is vital to keep good records for all your transactions with cryptocurrency, whether you are using cryptocurrency as an investment, for personal use or in business. Keeping good records will make it easier to calculate and meet your tax obligations, and if you are in business, they will assist you to manage your cash flow and see how your business is doing.
The ATO requires you to keep the following records in relation to your cryptocurrency transactions:
– the date of the transactions
– the value of the cryptocurrency in Australian dollars at the time of the transaction
(which can be from a reputable online exchange)
– what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).
The sorts of records you should keep include:
– exchange records
– receipts of purchase or transfer of cryptocurrency
– records of agent, accountant and legal costs
– digital wallet records and keys
– software costs related to managing your tax affairs
You can use an accountant or third-party software to help meet your record-keeping obligations and work out your tax.
Check out the ATO page here.
Crypto & DeFi Trading
This is a taxable event and results in capital gains tax.
There are no taxes on buying or holding (hodling) cryptocurreny in Australia. However, keeping accurate records of the purchase is very important so that you can calculate the cost basis of the transaction when you decide to dispose of the crypto.
Trading one crypto for another (ex. BTC → XRP) is also a taxable event.
The ATO sees a trade as 2 separate transactions, first you are selling your BTC for X amount of fictional dollars, then you are buying ETH with these fictional dollars. Even though you never received any dollars in hand, you still have to pay tax on the sale of the BTC. The market value (in AUD) of the purchased coins is used to determine the capital gain. If the cryptocurrency that you received can’t be valued, you will have to take into account the market value of the crypto you sold at the time of the transaction.
If you’re mining coins as a hobby (as opposed to a business), then the rules are similar to income derived from loans: any coins you receive as a result of your mining will be considered a new asset with a cost basis of zero. This means that if you sell or trade them, you’ll incur a capital gain equal to the total amount received (in Australian dollars).
If your mining operation qualifies as a business any coins you receive as a result of your mining will be considered income in Australian dollars at the time that it’s mined. Any income you make from selling or trading the crypto must also be reported. At the end of the year, any stock you have on hand will be measured against the stock you had at the beginning of the year and added to the total.
Mining is the process by which new coins minted; and also how new transactions are confirmed. Mining is a critical component of blockchain ledger operation and therefore rewards miners. Mining is usually paid in the coin that is being mined.
Moving your cryptocurrency between exchanges or wallets you own is a non- taxable event. However they must be your wallets and the coin cannot change.
Crypto Lending and Borrowing
Cryptocurrency loans are an increasingly popular way for people to earn passive income on their crypto holdings. Any coins or tokens received as a result of your loan will be treated as new assets with a cost basis of zero. This means that they’re not considered income, but if you sell or trade them, you’ll incur a capital gain equal to the total amount received (in Australian dollars).
The borrowing of fiat currency against crypto is not currently seen to be taxable income. However, if your collateral is liquified by the loan platform after falling below a certain value, then that will be considered a capital gains event and will be taxed accordingly.
Airdrops trigger income tax.
Some cryptocurrency projects send free coins to users to promote their projects (marketing). If you receive coins through an airdrop, you have to report the value of those coins as ordinary income at the time of the receipt. The amount you report as ordinary income will be the cost basis for those coins going forward.
For example, on 7 February 2022, Brad receives 1,000 DOGE coins from a new crypto project. On this day, 1 DOGE coin is worth AUD $0.10. On 7 February 2022, Sarah has to report AUD $100 (1,000 x AUD $0.10) of ordinary income.
Staking rewards are subject to income taxes similar to how your bank account interest works.
According to ATO, the value of the coins received is treated as ordinary income at the time they are received. Other consensus mechanisms that reward existing coin holders for their role in maintaining the network have the same tax outcomes. This includes rewards derived through Proof-of-Authority and Proof-of-Credit mechanisms by Validators, Agent Nodes, Guardian Nodes, Premium Stakers and other entities performing comparable roles.
Coin holders who vote in delegated consensus mechanisms or who participate in “proxy staking” and receive a reward by doing so, derive ordinary income equal to the monetary value of the coins they receive.
Crypto Wages and Salaries
Getting paid in cryptocurrency is subject to income tax.
Generally employees paid in cryptocurrency are treated the same as normal salary or wages. This means that employers and employees must meet all the regular ATO and super obligations based on the Australian dollar value of the crypto being paid.
Initial Coin Offering (ICOs) and IEOs
Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs)allow individuals to purchase tokens or coins for a cryptocurrency that doesn’t exist yet, by depositing an existing cryptocurrency like bitcoin or Ethereum.
In the eyes of the ATO this amounts to a crypto-to-crypto transaction, with the taxable event occurring on the date that the new tokens/coins are received. When you sell the new tokens, the cost basis for the transaction will be the value of the cryptocurrency that you initially paid for it.
Crypto Hard & Soft Forks
A cryptocurrency holder that owns cryptocurrency as an investment and receives new cryptocurrency due to a chain fork is not considered by the ATO to have made a capital gain or generated any regular income. Should the investor hold the new crypto currency as an investment, however, a capital gain is generated when the new cryptocurrency is disposed of.
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