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Digital Assets & Your Tax – Reporting Cryptocurrency On Your Return

Cryptocurrency is a hot topic of discussion in the taxation industry, due to its digital nature as an asset and the reporting requirements behind the tax on its earnings 

Cryptocurrency may seem like another form of money to you (albeit in digital form), but it isn’t to the Australian Taxation Office (ATO).

 From their point of view, cryptocurrency is just another type of asset that people invest in, just like when they invest in shares.  The tax treatment is fundamentally the same.  If you buy for a dollar and then sell for $11 dollars then you have to deal with a ten dollar profit. That profit could be a capital gain or it could be quantified as simple business income.  

What’s The Difference?

If you are a simple investor in crypto, you may have bought $10,000 worth of the currency, and held onto it for five years to then sell it for $25,000. The $15,000 “profit” from that sale would most likely then be treated as a capital gain.  You would be required to pay tax on half of that capital gain at your marginal rate.  

But let’s say you are trading in crypto on a regular basis as well as mining for coins.  This might indicate that you are actually in the “business” of trading crypto (just as people can be in the business of share trading).  In this case, you are taxed on your profits as income and not as capital gains.  

Normally this wouldn’t make a big difference, as a trader does not tend to hold their stock for more than a year. This means that they would not be entitled to the capital gains tax discount, as it requires you to hold the asset for more than 12 months to be eligible.

It is also very important to understand that the ATO receives the trading data from all the crypto trading houses (including overseas trading houses). You won’t be able to get away without declaring any trading profit from any crypto that you own on your income tax returns this year. 

Depending on the market, people may be able to make millions of dollars on the asset. However, the tax consequences of cryptocurrency can be fairly complicated and may require the assistance of a professional. If you are unsure as to how to treat your crypto gains and losses, please come and have a chat with us.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier