Crypto tax: What Australian investors need to know

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While it may have once been considered a “fad”, investor uptake in cryptocurrency has continued to grow since its inception in 2009. Crypto is now largely considered a legitimate asset by investors of all experience levels — not just younger and more experimental investors. Despite this, many Australian investors fail to realise that their cryptocurrency gains have tax implications, much the same as traditional assets like stocks (with a few key distinctions). In this article, we will discuss how crypto is taxed in Australia, methods to calculate CGT, as well as potential changes to reporting requirements that crypto investors should be aware of.

How is crypto taxed in Australia?

Much like the sale of assets like stocks or property during any given financial year, investors trading in cryptocurrency are required to calculate any capital gain or loss and record it on their annual tax return. This is generally the difference between what the asset cost and what the investor received when they disposed of it. However, it is important to understand the distinction between using cryptocurrency as a currency, investing in it, and holding it for sale or exchange in the ordinary course of running a business. For the purposes of retail crypto investors, the main point to note is that the ATO classes cryptocurrencies as CGT assets, not currencies.

This means that the sale of any cryptocurrency acquired as an investment will attract a tax on any capital gain accrued when it is sold. Crypto investors should also note that the ATO treats different activities in different ways. If you move from buying and selling crypto as a personal investment — with the aim of gradually building wealth — to running a trading, forging or mining business, the rules change. In that case, regularly buying and selling for short-term gains may mean you’re taxed as a trader running a business.

What are the tax implications of swapping cryptocurrencies?

Investors should be aware that by exchanging one cryptocurrency for another, they are disposing of one CGT asset and acquiring another CGT asset. And because the ATO treats cryptocurrencies as CGT assets rather than foreign currency, the market value of the crypto disposed of must be reported in Australian dollars. Where the value can’t be determined, the capital proceeds are calculated using the market value at the time of disposal.

Increased ATO scrutiny and less obvious taxable events

While there haven’t been any recent changes to Australian crypto tax rules, the ATO has significantly ramped up enforcement. This includes more sophisticated data matching with exchanges and blockchain analysis tools.

Importantly, there are some transactions that investors may not even realise can trigger a CGT event. Other than the example of swapping cryptos mentioned above, other taxable events include participating in DeFi protocols (e.g., staking, lending, liquidity pools) and using wrapped tokens (e.g., converting ETH to WETH).

Each of these is treated as disposing of one CGT asset and acquiring another, even if no fiat currency is involved.

How to calculate CGT on crypto

If you’re looking to calculate your CGT for crypto, the first step is to figure out your cost base and determine whether the capital proceeds from the cryptocurrency are more than this cost base.

For crypto assets, the cost base includes the purchase price plus all other costs associated with purchasing the cryptocurrency. If you make a profit selling crypto, then the percentage you pay on CGT is the same as your income tax rate (based on your total income accrued during the tax year). However, if you have a net capital loss, you can use it to reduce a capital gain made in a later year, just like with traditional asset classes such as stocks.

It’s also important to note that if you hold cryptocurrency for at least 12 months before selling or trading it, you may be entitled to a 50% CGT discount. The ATO considers the ‘CGT event’ to occur when you sell the asset, so changes in market value before then don’t trigger a capital gain or loss.

How to reduce crypto tax

Other than the CGT discount rule discussed above, there are several ways for investors to minimise the crypto tax they pay. However, these are best done in consultation with a tax professional to avoid falling foul of the ATO’s rules.

As mentioned previously, crypto investors are allowed to subtract current year losses and prior year losses from their current year gains before applying any CGT discounts. However, investors can only use capital losses to reduce capital gains, not other income.

While holding crypto assets for at least 12 months to access the 50% CGT discount is a common strategy, another widely used approach is to time disposals to realise strategic losses and offset gains. However, this tax-loss harvesting requires the careful tracking of gains and losses throughout the financial year in order to occasionally sell assets at a loss to offset CGT.

Lost or stolen cryptocurrency

If you have proof that your crypto has been lost, stolen or cannot be retrieved (such as in the case of an exchange collapse), the ATO may allow you to claim this as a capital loss. However, you will need detailed evidence to prove this.

Record-keeping requirements for crypto

The ATO advises that crypto investors keep up-to-date and accurate records of all transactions with or investments in cryptocurrency. This should include:

• The date of the transactions
• The value of the cryptocurrency in Australian dollars at the time of the transaction
• Who the other party was
• Receipts of purchase or transfer of cryptocurrency.

Record-keeping complexity

It’s important for crypto investors to understand that a singular transaction could potentially create multiple records, all of which need to be tracked for tax purposes. For example:

Disposal and acquisition events

As mentioned previously, swapping one crypto for another is seen as a taxable event. Specifically, when you trade Crypto A for Crypto B, the ATO considers this:

• A disposal of Crypto A (possible capital gain/loss)
• An acquisition of Crypto B (new cost base)

Therefore, one swap creates two records.

Network/exchange fees

On blockchain networks such as Ethereum, each transaction charges a fee to compensate the network validators (miners or stakers) who process and confirm the transaction. This fee is known as “gas”, and it’s typically paid in crypto. The ATO considers this a disposal of that fee amount (with its own capital gain/loss calculation).

Partial fills

On exchanges, a single order may be partially filled by multiple counterparties. This results in multiple trade records, all of which need to be kept on file.

Wallet/exchange recording

When you make a transaction, your wallet records both sides: the outgoing asset (capital gain/loss) and the incoming asset (new cost base). Using multiple wallets or exchanges adds complexity, as each one logs transactions independently. Without reconciling, combined records may show duplicates or gaps, which can complicate tax reporting. Always ensure transfers between wallets are treated as transfers, not disposals, to avoid triggering CGT by mistake.

Due to the complexity associated with crypto record-keeping, the ATO advises that investors consider using an accountant or third-party software for record-keeping and tax compliance. This is especially important for investors who have used multiple wallets or exchanges.

Upcoming changes affecting some investors

Possible legal shift in Bitcoin’s classification

A recent Victorian court decision classified Bitcoin as “Australian money” rather than property, which could remove it from CGT obligations if upheld. However, the ATO’s current position has not changed and the decision is under appeal, so Bitcoin continues to be taxed as property until further notice.

International reporting standards on the horizon

Australia is moving towards adopting the OECD’s Crypto-Asset Reporting Framework (CARF), which would require crypto exchanges and service providers to report transaction data to the ATO and enable greater cross-border information sharing. While this won’t change the tax rules themselves, it will give the ATO far more visibility into investors’ holdings and transactions, making underreporting far riskier.

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FURTHER READING

• Track Bitcoin and other cryptocurrencies with Sharesight
• Capital gains tax (CGT) calculator for Australian investors
• Record-keeping requirements for Australian investors