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Despite recent news that Bitcoin values are swinging wildly, in a rapidly digital financial landscape, cryptocurrencies are becoming commonplace. A savvy investor will ensure that their company and they are at the forefront of taxation requirements on cryptocurrencies.
How a cryptocurrency is taxed depends on whether a cryptocurrency transaction is a capital asset or used as revenue and deciding on which one is important in order to minimise your tax liability.
Cryptocurrencies are independent and not regulated by any central authority.
Right now in the USA, the Securities and Exchange Commission has increased oversight on cryptocurrencies and the US Congress is considering how to treat digital coins.*
This could be a sign that regulations might be forthcoming and being aware of the Australian Taxation Office (ATO)’s views on cryptocurrency will help you develop your guidance strategy.
The ATO views Bitcoin as a Capital Gains Tax (CGT) asset. If your Bitcoin (or other form of cryptocurrency) is used for private consumption transactions and can be regarded as a personal asset, then it is unlikely to be taxed and no losses can be claimed. If, however, your Bitcoin (or other form of cryptocurrency) is acquired as an asset for future sale, then it is not considered to be a personal asset and any profit-from-sale is likely to be taxed.
It isn’t only Bitcoin that falls under Australia’s taxation rules - all your cryptocurrencies need to be appraised for taxation purposes. Furthermore, if you exchange one cryptocurrency, in form or unit, for another, then it is also likely a form of taxation will be applicable.
In the 2017-18 Federal Budget, the Australian government passed legislation which ensure that supplies of cryptocurrency are not generally subject to GST and this legislation applies to supplies of cryptocurrency made on or after 1 July 2017.
Broadly speaking, cryptocurrency is now treated similarly to money to avoid the double taxation that can arise when a cryptocurrency is used to pay for goods or services (such that GST on the supply of the cryptocurrency and, secondly, on the supply of goods or services).
Most importantly, before investing for your SMSF, consider strongly heeding the high-risk factor of cryptocurrencies because they are unregulated and blockchain-driven products.
If you are a trustee of an SMSF, you need to ensure that any investment in a cryptocurrency is in line with the investment strategy of the fund, that it is an appropriate investment and, critically, that the trust deed allows for its purchase at the time the investment is made.
There is no industry standard for valuations of Bitcoin, however it is fairly easy to come by an accurate price valuation by utilising an online cryptocurrency tool such as https://www.coindesk.com/price/ which can provide price movements at any given time, both in the present and historically.
To minimise your tax liability on the purchase, sale, exchange and/or use of a cryptocurrency, YML Group can review your holdings and advise you on best practice as cryptocurrencies look set to maintain their presence.
*’SMH’ 16 March 2018
How can YML help?
Talk to our Accountants today to see how YML Chartered Accountants can assist you with cryptocurrency taxation. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.