The popularity of cryptocurrencies has grown exponentially in recent years, with more and more people investing in digital assets. However, with this growth comes new challenges—how to file your taxes on crypto earnings. Because of the decentralized nature and anonymity of many cryptocurrencies, it can be difficult to know how to report your gains or losses properly. Sometimes, people just opt default on their taxes if they don’t understand the system.
In Australia, cryptocurrencies are considered property and are subject to capital gains tax (CGT). You must pay taxes on the gains you collect from selling crypto. However, if you hold onto your crypto and it goes down in value, you can claim a capital loss that can offset other capital gains you may have made during the financial year. You can go here to learn more about cryptocurrency taxes in Australia.
Meanwhile, here is a step-by-step guide on how to file your cryptocurrency taxes in Australia:
- Know If You Are An Investor Or Trader
The first step is to determine if you are an investor or trader. This distinction is important because investors are subject to CGT, while traders are considered to be carrying on a business and are subject to income tax. For you to be considered as a trader by the Australian Taxation Office (ATO), some of the minimum requirements include:
- Undertaking crypto transactions in a business-like manner
- Operating in a repeated and systematic manner
- Deriving your livelihood or principal source of income from crypto trading
You will be considered an investor if you buy crypto and hold it for a long period. Investors don’t transact or sell cryptos in a regular manner. Instead, it is predominantly for reasons of personal investment and gain.
- Get Your Transaction History
Once you know whether you are an investor or trader, you must get your transaction history. If you are an investor, you will only need to report capital gains and losses when you sell your crypto. However, if you are a trader, you must report all your earnings from crypto transactions as taxable income.
There are a few ways to get your transaction history. The most common way is to download it from the exchange you used to buy the crypto. Most exchanges will have a function that allows you to export your trading history into a CSV file. If you have multiple exchanges, you will need to download the history from each one.
Another way to get your transaction history is by using crypto tax software. These programs can connect to your exchange and automatically import your trading history. This can save you a lot of time, especially if you have multiple exchanges.
- Calculate Your Gains And Losses
Once you have your transaction history, you must calculate your gains and capital losses. If you are an investor, this involves adding up all the money you made from selling crypto and subtracting any money you spent buying crypto.
If you are a trader, things are a little more complicated. You will need to calculate your total income from crypto transactions and subtract any expenses you incurred while trading. These expenses include trading fees, software costs, and interest on margin loans.
The capital losses can be used to offset any other capital gains you made during the financial year. So, if you made a profit from selling crypto but also had some losses, you would only need to pay tax on the net gain.
- Understand The Tax Rates
The next step is understanding the tax rates that apply to your situation. You will only need to pay CGT on your capital gains if you are an investor. The CGT rate in Australia is 15%, but there are some exceptions. For example, if you hold crypto for more than 12 months, you may be eligible for a discount on your CGT. Individual taxpayers can apply a tax discount of up to 50%, while compliant funds get a discount of 33.33%.
You must pay income tax on your earnings if you are a trader. The tax rate will depend on how much money you made. The income tax rates that are used on traders are as follows:
- Up to AUD$18,200 – 0%.
- AUD$18,201 to AUD$45,000 – 19% for the excess over AUD$18,200.
- AUD$45,001 to AUD$120,000 – AUD $5,092 + 32.5% of excess over AUD$45,000.
- AUD$120,001 to AUD$180,000 – AUD $29,467 + 37% of excess over AUD$120,000.
- Above AUD$180,000 to AUD$51,667 + 45% of excess over AUD$180,000.
These are the major things you need to know about how to file your cryptocurrency taxes in Australia. Remember, filing your taxes is very important. If you don’t do it correctly, you may be subject to interest and penalties. It’s also a good idea to speak to a tax professional if you have any questions. They will be able to help you ensure that you are compliant with the law and avoid costly mistakes.
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