As crypto becomes mainstream, you might want to start spending it on your daily life for products or services, but are those transactions taxable in Australia?
This week, we cover the distinction between using crypto as a personal use asset versus using it as an investment and how that impacts your taxes.
Stay tuned to clarify your crypto tax doubts with the insights of professional crypto CPAs in Australia, Cryptocate.
Is buying something with crypto a taxable event in Australia?
Buying a product or service with crypto is a taxable event if you bought crypto as an investment instead of as a personal use asset. So, what’s the difference?
Let’s imagine that you bought Bitcoin as an investment last year. Now, Bitcoin is worth more, and you haven’t sold it. In the meantime, you want to use some of your Bitcoin investment to purchase a new computer.
A couple of days later, you buy the computer directly with some of that Bitcoin. In this case, this transaction is a taxable event, subject to capital gains taxes because you have Bitcoin as an investment, and you purchase it intending to spend it immediately.
Capital gains tax cryptocurrency Australia
If you invest in cryptocurrency and you dispose of it (including spending it to buy a product), you create a taxable event in Australia, subject to capital gains taxes.
The capital gains will be the difference between the sales proceeds (when you sell your investment) and the cost base (the Fair Market Value of the crypto you bought at the time you acquired it).
The capital gains tax rate in Australia will depend on your total taxable income level for that year, depending on other factors (e.g., holding period, deductions, etc.).
Could spending crypto for a product not be subject to capital gains taxes? Let’s cover how it could fit into a personal asset use scenario.
Is spending crypto as a personal use asset taxable in Australia?
No, but you have to confirm that the crypto you’re using is aimed at buying goods (“personal consumption”) and not as an investment.
The Australian Tax Office (ATO) defines cryptocurrency as a personal use asset “if it is kept or used mainly to purchase items for personal use or consumption.”
So, what classifies a personal use asset? If you buy any crypto with the particular goal of using it for purchases, or you bought it and, in a short period of time, use it to buy goods in a consistent manner (a high portion of your holdings), then it can be considered a personal use asset.
The key distinction is the time you held your initial crypto purchase. If you buy it and keep it for the long-term, the probability that it is an investment instead of an asset for consumption is higher.
The ATO makes one final remark about capital gains for personal use assets:
“Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.”
Do you have to pay tax on crypto in Australia?
Any disposal of cryptocurrency in Australia is a taxable event. These operations include crypto-to-fiat (e.g., AUD) trades, crypto-to-crypto trades, NFT trades, and even gifting crypto. Trading crypto or NFTs are taxable events subject to capital gains taxes. Learn more about cryptocurrency taxes in Australia.
However, receiving crypto airdrops, receiving crypto interest, gaining crypto staking rewards, or receiving your salary in crypto are taxable events subject to income taxes instead of capital gains taxes.
You won’t be subject to taxes when you don’t dispose of your crypto investment. For example, transferring your crypto between wallets or buying any crypto and simply holding it without selling any portion of it.
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Do you have any crypto tax questions? Check Full Service Australia
Cryptocate, CoinTracking’s Australian Full Service Partner and premier Australian crypto tax firm, offers a range of services to assist with your cryptocurrency reporting. If you need help to report airdrops or other cryptocurrency income, Cryptocate specializes in creating cryptocurrency income and capital gains reports to ensure tax compliance. Talk to an expert from Cryptocate today by submitting a form on our Full Service page!
Clarify your questions about crypto taxes in Australia:
Cryptocurrency Tax Australia: The Complete Guide
Do you pay taxes on a Bitcoin salary in Australia?
NFT Taxes Australia: The Complete Guide
Do you pay taxes for receiving airdrops in Australia?
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*This post is a part of our educational series about crypto taxes in Australia, with the support and review of expert accountants from Cryptocate, the CT Full Service provider for Australia.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.