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Tim Loh – Crypto isn’t anonymous
Tim Loh: Crypto is supposed to be invisible. How come the ATO knows that I traded in it?
Crypto isn't anonymous or invisible. It leaves electronic tracks where it interacts with the real world.
We have what's called data matching protocols. That means crypto exchanges have to provide us with information.
Investing in crypto is still pretty new. Right now we want to help people get their tax obligations right. So you might get an email from us.
So if you forgot to add it into your tax return or made a mistake like adding it into investment income like gross interest or claiming a deduction, instead of reporting a capital gain or loss, you can lodge an amendment.
Lodging an amendment request is easy and it can be done online.
You can find out more information on our website at ato.gov.au/crypto
Tim Loh – Received crypto as a gift
Tim Loh: My uncle gave my crypto for my birthday. Now what am I supposed to do?
When you get crypto as a gift, there’s a few things to think about. The first would be making sure it’s actually in your name, not your uncle’s. Start keeping records. Including the market value at the time the crypto was gifted and not just to find out how much he loves you.
This will help when you dispose of the crypto as a market value will form part of the cost base. For crypto, disposing is usually exchanging, selling, or transferring. Disposals trigger what we call in tax land, a capital gains tax event.
It’s at this point you need to get all your records together and work out what to put on your tax return, which is why record keeping is so important.
But here’s a couple of tips. If you hold onto the crypto for 12 months or more, and you’re an Australian resident for tax purposes, you’re entitled to a 50% discount on any capital gains you make. That means that capital gain from the crypto is halved. But if you make a loss when you dispose of it, make sure you put that on your return as well, as you can use that loss to offset capital gains in the current or future years against other crypto or certain other investment assets.
There are also some rules around the disposable crypto that is a personal use asset.
You can find more info on our website at ato.gov.au/crypto
Tim Loh – Crypto has a foreign language
Tim Loh: Crypto has a different language wrapping, staking, forking, mining, airdrops. How do I translate it into tax speak?
It's true. There are so many new words to translate. It's like learning a new language. The way we look at it is trying to figure out what the intent of the word is. Like say, forking.
Think of it like it's a fork in the road. The blockchain splits and heads off into another direction.
And mining is similar to digging for precious metals. It's using computing power to create new coins. It won't hurt to do some research of your own.
So what does that mean in tax speak?
First of all, let's go right back to the basics and break down what the action is:
- Has there been a change in ownership?
- Has there been a capital gains tax event?
This includes things like transferring, swapping, selling and so on.
By looking at the intent of the action and our existing framework, we can figure out what it means and apply it. You can find out more information on our website at ato.gov.au/crypto
Tim Loh – When to declare crypto
Tim Loh: I heard you only have to declare crypto if you earn over $10,000 in profit. Is this true?
No. That is a myth. All capital gains have to be declared. Even if it's only a small amount.
Crypto is treated for tax purposes, just like other investment assets. When the total of all your capital gains are over $10,000, you have to complete a capital gains tax schedule in your tax return. But don't worry, my tax or your registered tax agent will guide you through that process.
To find out how to report it in your tax return, check out my video ‘How do I work out crypto gains or losses and add it to my tax return?’.
You can always come to us or registered tax agent for advice. You can find more info on our website at ato.gov.au/crypto
Tim Loh – Working out CGT on crypto
Tim Loh: How do I work out crypto gains or losses and add it on my tax return?
Okay, so here’s a simple explanation, but also refer to our website for more information as not everyone has simple tax affairs.
You enter your crypto earnings on your tax return at 'Total current year capital gains'. Remember, if you’ve had your crypto for 12 months or more and you’re an Australian resident for tax purposes, you could be eligible for the 50% CGT discount.
If you haven’t held it for 12 months, subtract your cost base from your sale price. This final amount is reported as 'net capital gains', but if you still make a loss, you need to provide the details.
To report a net capital loss, enter your total gains at 'Total current year capital gains'. Because you can’t enter a negative amount, enter zero at 'Net capital gains'.
Enter your total capital loss at 'Net capital losses carried forward to later income years.'
And remember, capital losses can reduce another capital gain, or you can carry it forward to offset capital gains in a future year.
You can always come to us or a registered tax agent for advice. You can find more info on our website at ato.gov.au/crypto
Tim Loh – Crypto losses and CGT
Tim Loh: I've only ever heard of people getting rich from crypto, but I sold some as it started to bomb, so I ended up making a huge loss. What can I do?
Yeah. People forget that crypto is highly volatile as you mainly hear the stories about new millionaires. But like any long term investment, there are highs and lows and not everyone gets rich.
If you make a capital loss, make sure to add it into your tax return. Capital losses can offset capital gains on your current years tax return or future tax returns. You can choose when to use the loss.
However, a capital loss cannot be used to offset any of your income, including salary and wages. Any capital loss that has not been used to offset capital gains in the current year can be carried forward to offset capital gains in future years.
You can find more information on our website ato.gov.au/crypto
Tim Loh – Lost access to my crypto
Tim Loh: I forgot my password and can't get into my digital wallet. My crypto is lost. What do I do?
Okay, so you have a really big problem.
It really comes down to if you've kept good records of each transaction, let's break it down.
Have you lost access to it or lost evidence of ownership? You may be able to claim a capital loss if you lose your crypto private key or your crypto is stolen.
To claim a capital loss, you must be able to provide evidence.
Things like:
- when you acquired and lost the private key,
- the wallet address that the private key relates to,
- the cost incurred to acquire the lost or stolen crypto,
- the amount of crypto in the wallet at the time of the loss,
- that the wallet was controlled by you.
For example, transactions linked to your identity, that you have the hardware that stores the wallet or transactions of the wallet from a digital currency exchange that you hold a verified account for is linked to your identity.
You can find more information on our website at ato.gov.au/crypto
Tim Loh – When to report on my tax return
Tim Loh: I've been investing in crypto for a while now and have been swapping coins and not really making any money on them. I only include on my tax return if I make money, right?
Well, it all comes down to whether there has been an event for capital gains tax purposes. CGT or capital gains tax events include disposing of crypto like selling and transferring and a whole lot of other things.
Swapping is like transferring. Technically, what you're doing is disposing one type of coin to acquire another one.
Each disposal is a CGT event, so each transaction needs to be considered for CGT purposes. And even though you think you haven't made any money, you still have to report your capital gains or losses on your tax return.
It's also rare that you would come out even so you might not be making a capital gain, but you might be making a capital loss that you can use in the current year against other capital gains or carry forward to offset your capital gains in the future.
So to answer your question, you have to account for all your capital gains and capital losses, which is why recordkeeping is so important.
Our CGT recordkeeping tool can always help. You can find it at ato.gov.au/calc_CGTrecordkeeping
You can always come to us or a registered tax agent for advice and there's information on our website at ato.gov.au/crypto
Tim Loh – Receiving crypto in my business
Tim Loh: I run a business and my customers want to pay me in crypto. What do I need to do?
If your business transacts with crypto, you need to account for crypto like you would other assets used in your business.
You need to include the value of the crypto in Australian dollars as part of your ordinary income.
It's the same process as receiving any other non-cash consideration under a barter transaction.
Where you purchase business items using crypto, including trading stock, you're entitled to a deduction based on the market value of the item acquired.
You can find more information on our website at ato.gov.au/crypto but I'd also suggest anyone using crypto as a method of payment to a business to check out the GST rules.
In GST land, they call crypto digital currency. GST info is on our website at ato.gov.au/GSTdigitalcurrency
Tim Loh – SMSFs investing in crypto
Tim Loh: My SMSF wants to get into crypto investment. What do I need to consider?
The first thing you need to find out is whether the funds trust deed includes investing in crypto. The deed may need to be updated before investing. Check if investing in crypto is in line with the fund's investment strategy. The investment must comply with super industry regulatory requirements concerning investment restrictions.
So if you have all of that covered off, you need to make it clear that the fund is the owner of the crypto. It will need its own digital wallet and keys and be able to buy and sell the crypto through the fund.
Some things to consider showing SMSF only ownership could be the account details being only SMSF related, such as the email address used for the account, bank records matching crypto fiat fund deposits and SMSF of bank account outgoings for the investment.
Clean records that show the transactions with the crypto and how they align with the SMSF's deed.
For more information, go to ato.gov.au/SMSFcrypto
Transcript for an interactive video on crypto myth-busting with Tim Loh.