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How Does Tax Work on Cryptocurrencies | Tax on Crypto in Australia

you've probably noticed that the word

cryptocurrency is starting to appear

again

whether it's in mainstream media on

social media it might be that friend

that you're talking to at the water

cooler at work

it's definitely making its way back into

that mainstream media

whether it's bitcoin ethereum or

dogecoin

you're probably hearing a lot of these

different terms and now people are going

oh maybe i should invest in them

well if you're going to do that you

really need to understand how the tax

works on it so today i'm going to share

with you how the tax works on

cryptocurrencies in australia

and some of the pitfalls that you need

to watch out for

so that you make your tax time much

simpler anyway

let's get into the video

hello everyone my name is ethan ruschok

and on today's episode i'm going to be

talking to you about

tax on cryptocurrency in australia as i

said in that intro

cryptocurrency is hitting mainstream

media again the price of bitcoin has

been rising and when the price of

bitcoin rises

it seems to make its way back into

mainstream media

people were talking about it and

therefore more people are investing in

it

it's definitely something you need to be

careful though when it comes to tax it's

going to be taxed potentially so you

need to understand how it works

and what record keeping you need to do

to make sure it's not an absolute mess

for you

i've seen some real horror stories when

it comes to cryptocurrency and tax

so i've had people come to me and

they've got no records whatsoever

and they've been unable to construct the

records and therefore i've been unable

to help them

i've also seen situations where people

have sold

assets and not really understood how the

tax works on it

and therefore have actually lost money

overall but due to the timing of their

sales

actually owe a lot of money in capital

gains so there's ways that they could

have avoided this if they've had a

better understanding of how the tax

system works

and time some of these sales better and

because a lot of people are selling

coins for coins

and there's a lot of altcoins out there

it's not just bitcoin they're trading

and they're doing a lot of different

things

the record keeping can get really messy

so you need to have an understanding of

what records you need to keep so that

when it comes to actually working out

what capital gains you've made etc

it's really simple then all right so

first i want to quickly go about how tax

works on cryptocurrencies in australia

so pretty much it'll be treated almost

the same way as shares

so you are likely going to buy an asset

in this case it's going to be a coin so

you might buy bitcoin and then that when

you sell that asset you'll likely have a

capital gain or capital loss on it

so it can be as simple as that but the

thing you've got to remember it's not

just when you sell that

asset back to australian dollars it's

every time you trade that asset so if

you buy bitcoin with australian dollars

that'll get you a base

value but if you now go and buy ethereum

with that bitcoin for instance

that is going to be another trade and

you've got to convert all those

transactions back to australian dollars

to work out whether there's a capital

gain or capital loss on each transaction

now look it can get more complex than

that there's luckily there's the ato

website here which i'll provide a link

to in the description because that's

really good on

having some real good examples of

different situations that might apply to

you and how they would be taxed

so it's going to be a bit like shares is

there's going to be people that are

invested

that are looking for a long term gain or

loss but you also might be a trader

where you're

trading daily and therefore you're going

to be taxed slightly differently

now there's not going to be dividends as

such with a lot of coins but there are

some coins that pay

income so again this is another area

that you need to look into

because you'll have to pay tax on that

income that you're receiving

like you would with a dividend or

interest so that's going to be added

onto your taxable income

and therefore you're going to pay tax on

it so like i said it's it's pretty

simple it's going to be

very similar to shares so you're going

to have capital gains or losses

you need to make sure that's on every

transaction not just when you're

converting back to australian dollars

and therefore you need to convert every

transaction into australian dollars to

be able to work out

what the australian dollar capital gain

or capital loss is

now the good thing with this is because

it's capital gains it's going to be

treated like normal capital gains so

you're potentially going to have

discounts if you hold for over 12 months

or if you've got capital losses you can

offset them against other capital gains

so if you think of it each coin is going

to be like buying a share

and treat it in the same way that so

i'll link you to the video where i've

gone into

get tax on shares because it's going to

be very similar to that so make sure you

check that video out if you want a more

detailed description of how this works

so i want to go through a couple of ways

that you could track this to make it

easier for you

so you could obviously keep a

spreadsheet so whether it's on excel or

google sheets

keep a spreadsheet of all your buyers

all your cells work out each

gain on or loss on each transaction

and therefore add those up keep a track

of which ones are over 12 months etc and

you better work out your capital gains

or capital losses

this could get a bit complex if you're

making a lot of different trades or if

you've got a combination of under 12

months over 12 months when it comes to

discounts

or exchange rates etc so you really want

to make sure that your spreadsheet is

set up well fundamentally

so it doesn't make a nightmare at the

end of the year for you the other option

is that if you're say using share site

which i've talked about before when it

comes to

normal shares is that that can also

track certain cryptocurrencies

it's limited by the ones that it can do

but it will do your major ones like your

bitcoin or your ethereum

so if you're already using sharesight

this will probably be a great way

because it's going to lump all of these

crypto transactions in with your other

shares and it's going to make it really

easy for you to report on your total

investment holdings at the end of the

year so definitely have a look into that

if you're using sharesight i've got a

link down in my description to

sharesight

so make sure if you want to make it

really simple go through there sign up

and keep track of them from day one

because it'll make your life much

simpler

the other option is actually a website

here called coin tracking so i've

actually used that in the past

and it's obviously built for

cryptocurrencies and it's really

detailed it's got a lot of exchanges on

there where you can track on

returns by exchange by coin by date and

you can pull out a lot of different

reports so it goes beyond just tracking

it for tax wise

now keep in mind some of this tax stuff

is set up for overseas markets as well

but you can make sure that you set it up

in a way that will work for the

australian market as well

but it is a really good detailed site

like i said i've actually used it in the

past and found it really good i've also

found a great way to track how my

portfolio is performing when it comes to

my cryptocurrency assets

so it doesn't really matter which one of

these methods you do but make sure you

do at least one method

keep all your source documents etc

through your exchanges

but make sure you're collating it into a

simple way so that when it comes to

calculating these things at tax time

it's much easier for you because you

don't want to be paying someone to do

this for you

and it costs you a fortune because

that's just going to eat into the

returns you're making of your assets

now i just want to go through a couple

other things that are common

misconceptions when it comes to tax and

crypto

so one of the things is that people go

oh it's a decentralized

economy no one's going to know the ato

will never find

out but this isn't true a lot of the

australian exchanges for instance you

have to provide know your customer

things when you sign up for these and

i've seen it on

pre-filling reports that i get that

shows a client's income

etc and it shows on there that this

client may have disposed of crypto

currencies

so the ato are definitely becoming much

more

aware of people's dealings in

cryptocurrencies so the reality is if

you've got

income from any source where it's

employment whether it's from investing

or cryptocurrencies you should be

declaring it

it's not worth the risk you're going to

get called out likely because these

data matching things are getting better

and better from the hdo so like i said

they're now aware of who is exchanging

cryptocurrencies

and therefore if you don't include it

you're going to be flagged potentially

for an audit

now the other thing i want to touch on

there is a way that potentially that you

won't

have to pay tax on cryptocurrencies but

that's only if you're using them

as a currency in day-to-day life so for

instance if you were using bitcoin to go

purchase

other things for your business or

whether it's individually

then you may not be an investor or

trader if you can show that you're

actually holding it as a personal use

asset not investing for a long term gain

now obviously that gets a little bit

complex

but it should be simple if you think of

it well what am i actually using this

for if i'm transacting in bitcoin to buy

goods or services then it is likely that

you are using it for a personal use

but if you're buying it with the

intention that you're hoping it goes up

in value then you're definitely investor

and you're gonna have to go back through

what i've just talked about and pay

capital gains on it

if you make a gain or record that

capital loss so you really need to have

a good understanding before you go and

invest in cryptocurrencies on how you're

going to be taxed on them

because it's such a complex area if you

don't get it right early on

it can be more complex with shares due

to people are trading between

coins and there's a lot of stuff in

foreign currencies as well

but if you get it right from the start

keep the record keeping you can keep it

simple

and as always make sure you understand

what you're investing in in general

because if you don't understand what

you're investing in that's when you're

going to lose money likely

make sure you get the tax side of it

right and make sure you check out more

videos on my channel

hit that like button hit that subscribe

button and i'll see you on the next

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