So how does the ATO treat Cryptocurrency

Written by Ronald Pratap

on December 7, 2021

The Australian Taxation Office recently updated its guidance on tax and cryptocurrency.

The Commonwealth Bank stated in early November that it has become Australia’s first bank to allow customers to buy, sell, and hold crypto assets directly through the CommBank app. When the banks join in, you can be sure that cryptocurrency will become commonplace.

However, cryptocurrency is only a small component of the blockchain world. Non-fungible tokens (NFTs) are one-of-a-kind digital assets that are part of the Ethereum blockchain (fungible meaning interchangeable). The CryptoKitties game, for example, allows players to buy, collect, breed, and trade unique virtual cats — and, before you laugh, in its first few days of operation, the game exchanged over $1 million in virtual cats.

NFTs are also gaining traction in the art world because the asset is owned by the blockchain, and in some cases, the artist can take a percentage of every transaction involving that artwork – no more starving artists because they can earn money from the asset over time rather than just on the first sale. The sale of an NFT artwork by digital artist Beeple, which was sold at auction by Christies in March 2021 for $69 million, is a shining example (USD).

Let’s have a look at what the Australian Taxation Office has to say about some of the most often asked issues about the ramifications of blockchain investment.

Is mining cryptocurrency income or an asset?

If you receive cryptocurrency in exchange for offering services to others, this can be considered income. You obtain a capital gains tax (CGT) asset when you develop crypto. When you exchange crypto for Australian Dollars or another crypto asset, you will face a taxing event.

Does the ATO really know about my crypto transactions?

To track taxpayer compliance, the ATO collects data from a variety of sources, including digital service providers (DSPs) and analysis tools. Several data-mining efforts (no pun intended) are now underway, with a focus on bitcoin and cryptocurrency platforms.

What happens if my cryptocurrency is stolen?

If you lose your cryptocurrency private key or it is stolen, you may be eligible to claim a capital loss. In most cases, an object that can be replaced is not considered lost. It is impossible to replace a lost private key. As a result, you must be able to submit the following types of evidence in order to claim a capital loss:

• When you first got the private key and then misplaced it
• The wallet address to which the private key is linked
• The expense of replacing the cryptocurrency that was lost or stolen.
• The quantity of cryptocurrency in the wallet when the private key is lost.
• You were in charge of the wallet (for example, transactions linked to your identity)
• That you have access to the hardware that houses the wallet.
• Transactions to your wallet from a digital currency exchange where you have a verified account or where your identity is linked.

I mine cryptocurrency as a hobby so I should not have to pay tax on it?

Unfortunately, you won’t be able to avoid paying taxes by mining for leisure. There are very few scenarios in which you can generate cryptocurrency or use it without paying taxes.

Can I get a tax deduction for computer equipment purchased for mining?

If you work in the mining industry, you can deduct the cost of the equipment you buy to create revenue. If you don’t run a business, the cryptocurrency is treated as an investment, and the equipment isn’t tax deductible.

How is my NFT artwork taxed?

An NFT, like any other cryptocurrency, can be used for personal purposes. CGT assets that you preserve primarily for your own personal use or enjoyment are known as personal use assets.

If NFT is retained or utilized primarily for the following purposes, it is not a personal use asset.

• As a financial investment
• As part of a money-making strategy, or
• In the course of a business transaction.

The time to determine whether an asset is a personal use asset is when it is disposed of. The manner in which an NFT is stored or used may alter over time (for example, NFTs may originally be acquired for personal use and enjoyment, but ultimately kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business).

Even if you utilize an NFT for personal use or consumption, the longer you hold it, the less probable it is to be a personal use asset.

For CGT purposes, capital gains from personal use assets purchased for less than $10,000 are ignored. All capital losses on personal use assets, on the other hand, are ignored. Collectibles are not considered personal use assets and may be subject to capital gains tax (CGT).

Can my Self Managed Superannuation Fund invest in cryptocurrency?

The question is not whether you can buy cryptocurrencies in an SMSF, but whether you should. According to the ATO’s June 2021 statistical report, Australians had around $212 million in bitcoin assets as of June 30, 2021, accounting for only 0.03 percent of total assets. The basic explanation is that cryptocurrency’s volatility makes it more difficult to rationalize under Section 62 of the Superannuation Industry Supervision (SIS) Act, especially if the SMSF’s asset allocation ratio of cryptocurrency assets is high. However, if properly handled on an investment and administrative level, it is not impossible.

With Bitcoin trading as low as $14k on September 13, 2020, and $61k on September 12, 2021, it’s easy to see why investors with a risk appetite might be interested (335 percent return across 12 months). During the same time frame, Ethereum increased by 767 percent. But the world, not just cryptocurrency, was in a different position in September 2020.

There are a few factors SMSF trustees should be aware of before investing in cryptocurrency:

Trust Deed – The fund’s trust deed must permit the use of cryptocurrency assets. Most SMSF trust deeds are written broadly to allow trustees to invest in assets permitted by superannuation legislation while leaving asset selection and appropriateness to the investment plan. It is, nonetheless, necessary to double-check.

Investment strategy – With any investment inside an SMSF, your Investment Strategy is a crucial concern, but with cryptocurrency’s high volatility and hazards, the Investment Strategy must include clearly articulated facts. That is, it must state the trustees’ strategy for creating, holding, and realizing assets in a way that is consistent with members’ retirement goals while taking into account their unique circumstances.

Asset separation – it’s critical that bitcoin assets are housed in a wallet in the SMSF’s name, with the IP address disclosed to the SMSF auditors for verification purposes (against the fund bank account). When a wallet (in the name of the SMSF) is linked to a personal credit card to purchase cryptocurrencies, problems can develop. The payment is viewed as either a contribution or a loan to the SMSF in these situations.

You should also consider the SMSF’s investment diversity, according to the ATO.

Don’t hesitate to give us a call should you require further assistance.







The information in this website and the links has been prepared for general information purposes only by our research partners and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax, or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned on this website, consult a professional financial advisor to consider whether it is suitable and appropriate for you and your personal needs and circumstances.

Ronald Pratap

Principal Financial Planner at RP Wealth Management | Financial Planning l SMSF I Insurance l Property Advisory. Our purpose is to provide our clients with sound advice and direction to assist with their financial affairs and help them make the best choices in achieving what is important to them.

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