In Australia, selling, swapping, or simply disposing of cryptocurrency is subject to Capital Gains Tax (CGT). If your coins appreciated in value since purchase or acquisition and you make a profit, you need to be aware of what you owe. Below we’ll explain how to calculate crypto tax in Australia, with the principles applicable to other countries.
Crypto tax explained
The Australian Tax Office (ATO) classes crypto as property, not money. This means, for non-professional investors, it is considered an asset and, as such, is subject to Capital Gains Tax. Professional traders are treated differently with crypto profits treated as income.
Whether your crypto trading is subject to CGT or income tax depends on whether you invest as an individual or you do it regularly in a professional capacity.
- Investors: CGT
- Traders: Income tax
Crypto and CGT
A capital gain is a gain or loss in the difference between what you paid for an asset, and when you dispose of it.
In Australia, the CGT rate is the same as your income tax rate (https://www.ato.gov.au/Rates/Individual-income-tax-rates/), with a 50% reduction if held for more than a year. Whether it’s crypto, property, or stocks and shares, the capital gain or loss from your investment is taxed according to your income bracket.
A CGT event is financial activity that triggers capital gains. In terms of crypto, the owing events trigger CGT:
- Selling crypto
- Swapping crypto
- Paying gas fees
What you need to know to calculate crypto tax
To calculate what crypto tax you owe you need to be aware of a few terms and concepts. Familiarity with these is needed in order to accurately find out your tax liability and avoid under (or over) paying.
- Sold price: the price of the crypto when you disposed of it, e.g selling 1 ETH for $4000.
- Cost basis: the original price you paid for the crypto, minus fees, e.g. bought 1 ETH for $1000, paid $5 in fees.
- Income (taxable): total taxable income for the year you disposed of your crypto asset (used to determine CGT rate).
- Ownership length: Holding a cryptocurrency longer than 12 months entitles you to a 50% CGT discount.
Crypto tax calculator
There are several useful online tools to calculate your crypto tax:
Swyftx has an up-to-date and useful tool that factors in the length of time you held your crypto and your income tax bracket. Alternatively, the ATO’s own capital gains tax record keeping tool can be used to confirm the figures. This is because crypto is treated the same as any other form of property subject to capital gains.
How to calculate crypto tax yourself
To determine what tax you owe on your crypto, simply plug your information into the following formula, remembering to halve the capital gain if the asset was held for longer than 12 months:
Capital Gain / Loss = Sold Price – Cost Basis
Then, look up your income tax rate on the ATO’s website and apply the relevant tax rate to your capital gain. If you experienced a capital loss, this can be used to offset any other capital gains you have.
For example, say Leon bought 1 ETH a couple of years ago for $1000. He now sells that ETH for $4000. In total, he pays $100 in fees.
Capital Gain = $4000 – $1100
Leon’s capital gain is $2990 but held the crypto for more than 12 months, so only 50% ($1495) is taxed. As Leon earns between $45,001 and $120,000 per annum, he effectively resides in the 32.5% tax bracket and this is applied to his figure.
$1495 * 0.325 = $485.88
Leon’s total crypto tax is $485.88.
Tax breaks
There are some situations where you won’t need to pay any tax on capital gains made from crypto or you can pay less:
- You earn less than $18,201: your first $18,200 of income is tax-free, with the same tax rate applying to capital gains.
- You held the crypto for longer than a year: as discussed, if you hold your crypto for longer than 12 months, you’ll only be taxed on half of your capital gain.
- Your asset is for personal use only: if you are only acquiring and disposing of crypto to purchase something such as an Metaverse NFTs to Buy, or pay for an online service etc. without any intention of value appreciation you can apply for an exemption from CGT. Investing in NFTs can be risky, but it has the potential for high returns as the market continues to evolve and gain mainstream adoption
Takeaway
While understanding your tax responsibilities can often feel a little daunting, getting tax-confident is vital to successful crypto trading and should be something every investor understands.