Watch out, the ATO knows about your crypto investments (2024)

Data gathered under the program will also be held for seven years, so the tax office can cross-reference records.

Do I have to pay tax on cryptocurrency?

Yes. If you sell an asset, including your cryptocurrency, you will need to calculate either your capital gain or capital loss, and then record those details in your tax return.

And as the ATO warned in May, it will be paying particular attention to what investors do with their cryptocurrency this tax season.

“Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets, so it’s important people understand what this means for their tax obligations,” Loh says.

But many cryptocurrency investors this year will be lodging losses after recent interest rate increases and economic instability.

“Crypto markets in particular have taken a hit after reaching record highs of nearly $3 trillion in November 2021 prior to dipping below $1 trillion,” Koinly crypto tax expert Danny Talwar says.

How is cryptocurrency taxed?

The ATO will tax cryptocurrency assets such as coins and non-fungible tokens as capital gains tax (CGT) assets.

However, investors who stake cryptocurrency, or who lock their existing tokens to help validate transactions on the blockchain and in exchange receive additional tokens, will have those rewards taxed as ordinary income. This tax is calculated based on the value of the staked tokens (once converted into Australian dollars) when they were received.

The federal government has also confirmed that cryptocurrency is not regarded as a foreign currency for tax purposes, despite El Salvador’s decision to allow bitcoin to be used as legal tender.

Assistant Treasurer Stephen Jones says the central American country’s decision has the potential to “create uncertainty”, and the decision against treating cryptocurrency as foreign currency is designed to curb that risk.

Broadly, cryptocurrency is taxed at the same rate as your income before the 50 per cent CGT discount is applied to investments held for at least a year.

Can I use cryptocurrency losses to offset tax?

Yes and no.

If you’ve sold your cryptocurrency assets for less than you bought them for, you have a so-called capital loss. You can use this to offset other capital gains – that is, investment gains you’ve made by selling investments for more than you purchased them.

But you have to have actually made the loss.

“Many people regard certain cryptocurrency transactions as ‘paper’ gains or losses but actually the ATO regards them as very real,” H&R Block head of tax communications Mark Chapman says.

“Say I buy some bitcoins and then exchange them for a different cryptocurrency. That gives rise to a capital gains tax event at the date of exchange, even though the taxpayer might argue the gain (or loss) is not actually realised into Australian dollars.

“This is a common mistake that crypto investors make – you can easily find yourself with a CGT liability and no actual cash to pay it.”

And, adds the ATO’s Loh, there are restrictions around how tax offsets can be applied.

“Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year. Remember, you can’t offset your crypto losses against your salary and wages,” he says.

The ATO has also issued a warning against “asset wash sales”, given the market downturn. This usually involves selling assets at a loss just before the end of the financial year to realise a loss, before buying back the same or substantially similar assets soon after.

The ATO considers this a form of tax avoidance, and warns it will be monitoring investors for this action.

How do I work out what my capital gains (or losses) are?

First, you will need to convert the value of your cryptocurrency assets into Australian dollars. The ATO suggests investors use the exchange rates provided by digital currency exchanges at the time of the transaction to do this.

Then, investors can work out the CGT using the ATO’s online calculator and record-keeping tool.

Generally, your CGT will be calculated as your total capital gains less any capital losses and less any entitlement to any CGT discounts on your gains.

Does it make a difference if I’m an investor or a trader?

It’s a bit confusing, but yes.

Generally speaking, most people will fall under the investor category and have the CGT rules applied to them. If they’re an investor, it means they’re holding cryptocurrency as – wait for it – an investment. They’re hoping it will grow in value to give them capital gains.

These investors will be taxed under CGT rules.

But if you’re transacting large amounts of cryptocurrency with a goal of maximising profits, rather than having a buy-and-hold approach to cryptocurrency, then you’re likely to be considered a trader.

That means the proceeds of your trades will be taxed under trading stock rules, rather than CGT rules, with the proceeds assessed as income.

What information do I need to fill in my tax return as a crypto investor?

You’ll want to have the dates of your transactions and the value of the cryptocurrency in Australian dollars at the time of transaction. You’ll also have to detail the purpose of the transaction and the details of the other transacting party.

Receipts, exchange records, digital wallet records and keys will come in handy here.

“We’ve heard that trying to keep track of crypto-asset taxes in a spreadsheet is virtually impossible, so investors might want to consider digital record-keeping solutions and speak to a registered tax agent to make sure they’re getting things right,” CPA Australia tax policy senior manager Elinor Kasapidis says.

And it probably won’t always be this complicated, she adds, with the ATO likely to begin pre-filling increasing amounts of cryptocurrency information into tax returns.

“Things like sales of shares and dividends, interest, we’re very used to having those in our tax returns,” she says.