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Trading Crypto? It Can Be A Taxing Asset To Deal With In Your Return

No matter if you’re a dedicated crypto trader or just someone who’s been doing a spot of dabbling with the digital asset, it is still required that you let your accountant know just how much they’ll be dealing with this tax return season.

Cryptocurrency isn’t an easy tax matter to handle either.

According to the Australian Taxation Office, “if you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances.”

Your activity related to cryptocurrency will be taxed with either capital gains tax (CGT) or income tax, depending on the type of activity you undertake.

CGT will be applicable if you:

  • Sell or gift your crypto
  • Swap your crypto for another crypto
  • Convert your crypto into fiat currency

Income tax will be applicable if you:

  • Receive staking rewards
  • Receive an airdrop.

If you conducted a crypto-to-crypto swap, you will still be taxed with CGT. This is because the ATO considers this to be a ‘disposal event’, which means that these types of transactions are taxable and must be recorded correctly as such.

To ensure that your accountant is equipped with what they need to know to handle your tax matters involving crypto compliantly, you will need to provide them with records to do with any and all transactions to do with your digital assets. These records could differ depending on the activity conducted with them.

Buying (acquiring)

You will need to keep either:

  • records of receipts of transactions
  • documents that display
    • the cryptocurrency
    • the purchase price in Australian dollars
    • the date and time of the transaction
    • what the transaction was for.

You will also need records showing:

  • commission or brokerage fees on the purchase
  • agent, accountant and legal costs
  • exchange records.

Owning (holding)

You need to keep records of:

  • software costs related to managing your tax affairs
  • digital wallet records and keys
  • documents showing the date and quantity of cryptocurrency received via staking or airdrop.

Disposing

You will need to keep either:

  • records of receipts of sale or transfer
  • documents that display
    • the cryptocurrency
    • the sale or transfer price in Australian dollars
    • the date and time of the transaction
    • what the transaction was for.

You also need records showing:

  • commission or brokerage fees on the sale or transfer
  • exchange records
  • calculation of capital gain or loss.

If you need assistance this year with your cryptocurrency and its tax obligations, you can speak to a trusted tax advisor or contact the ATO for further information.

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