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Tax treatment guide for crypto
Tax treatment guide for crypto

We'll go through the basics of how your crypto is treated for tax purposes in Syla

Updated over a week ago

Syla makes crypto tax simple by automating away the complexity. We'll go through the high-level tax treatment in this guide if you'd like a better idea of what's going on behind the scenes.

Crypto tax in Australia

The main tax legislation in Australia is called the Income Tax Assessment Act 1997 (ITAA 1997), and it has over 5,500 pages of rules.

Syla takes all of this tax law, along with other related tax legislation, rulings and case law, and codifies it into tax logic. Syla uses this tax logic to automate the tax calculations for your crypto investments.

What is crypto for tax purposes

The ATO gave clarification on their interpretation of the tax treatment of cryptocurrency with Tax Determination TD 2014/26.

  • bitcoin a 'CGT asset' for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997

Other common types of CGT assets used for investment include Shares and Real Estate.

What's not crypto

While we know that bitcoin and other cryptocurrencies are considered CGT assets, there are many other assets you may encounter that are not direct ownership of crypto.

These assets can have very different tax outcomes.

  • Foreign Currencies - Division 775 of ITAA 1997.

  • Derivatives Products such as Futures, Options and CFDs.

  • Financial Products such as managed investments schemes, direct equity and others.

Note: You can directly represent Crypto assets and Foreign Currencies in Syla. You can also achieve the correct tax outcomes for derivatives contracts and other products by applying the corresponding transaction types.

Types of assessable income

There can be many different types of assessable income in your crypto activity.

Capital gains tax (CGT)

Most everyday investors with crypto assets will be subject to Capital Gains Tax (CGT), provided the crypto is acquired for an investment purpose.

  • Capital gains is dealt with in the ITAA 1997, particularly Part 3-1 of the Act.

Capital gains are usually the bulk of the assessable income from a crypto investment activity.

Capital gains calculations work much the same way as Capital Gains work on shares.

  • If the asset goes up in value it will result in a capital gain

  • If the asset goes down in value it will result in a capital loss

  • Consider whether the gain is eligible for the CGT discount

More detailed example calculations are available in our article on capital gains tax.

Foreign currency gains and losses

Foreign currency sits under a very different section of tax legislation in Australia, and it can't be treated the same as crypto. Buying and selling foreign currencies will result in Foreign Currency Gains and Foreign Currency Losses.

It's surprisingly common to see foreign currency in Australian investment portfolios, as many international and Australian platforms do accept and allow trading between foreign currency.

Ordinary income

It's now very common for investors to have at least one source of ordinary income related to their cryptocurrency activity.

  • Interest on crypto

  • Distributions

  • Commission/ affiliate payments

  • Derivatives contracts

  • Trade rebates

  • Staking rewards

  • Mining rewards

Derivatives contracts are another common source of ordinary income:

  • Derivatives contracts

  • Standard futures with fixed settlement date

  • Perpetual futures (similar characteristics to a CFD)

  • CFD contracts

  • Option contracts

Tip: The fact that ordinary income has been derived is important, as it will make it easier to satisfy the requirements for related expenses to be deductible.

Deductible expenses

Expenses that are related to an income producing activity can often be claimed as a deductible expense. See ATO ruling IT 2606

  • Borrowing fees

  • Lending fees

  • Service fees

  • Network fees

  • Withdrawal fees

  • Deposit fees

  • Interest paid

  • Derivatives fees

Note: Brokerage fees are already capitalised into the cost base of your assets, in which case they can't be claimed again as an expense.

Non-assessable income

In rare cases, it's possible to receive cryptocurrency assets from undertaking a gambling activity. In this case, profits are treated as non-assessable income and losses are non-deductible expenses.

Important: Gambling must be from a genuine game of chance. Speculative trading of crypto is not considered gambling for tax purposes. See PBR 1051781223882 for an example private ruling on crypto gambling.

Private use

Some activities or transactions are private/ personal use:

  • Gifts that have been received, in which case you don’t declare income or gain on the gifted amount, however the subsequent sale of the gifted crypto is still taxable.

  • Payments that are private in nature, which are not a deductible expense, however, if the crypto was held for investment it is still taxable on the capital gain.

  • Disposals that are eligible for personal use asset exemption, in which case the resulting capital gain or loss is exempted.

Not taxable

Some transactions are simply not taxable events.

  • Internal transfers of crypto between platforms and wallets are not taxable, provided ownership of the crypto is maintained.

Tip: While internal transfers have no tax outcomes, they are still important for completing your crypto tax. Recording your internal transfers ensures that all your balances will add up and all transactions have been accounted for.

Crypto corporate events

There’s many special events that can occur with crypto. They often require further analysis to understand the tax implications:

  • Airdrops

  • Chainsplit / Forks

  • Redenomination / Ticker change

  • Delisting

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