It’s undeniable that the quick rise of bitcoin and other cryptocurrencies has made them a well-liked investment option in recent years. Due to its fast rise, it has been able to make and lose huge amounts of money in surprisingly short periods of time, attracting many inexperienced investors.
You should be aware of the Tax Implications of trading and buying these unique digital items if you’re considering investing in cryptocurrencies or if you currently do.
How are Bitcoin taxes handled?
There are frequently no income tax or GST repercussions if you use bitcoin to simply pay for goods or services rather than running a business or engaging in any other form of enterprise.
When an Australian resident sends bitcoin to a third party, CGT may be incurred since bitcoin is regarded as a capital gains tax (CGT) asset. Transactions, however, are free from paying capital gains tax if:
- Bitcoins are used to pay for things like hotel reservations or purchases at a cafe that takes them.
- The transaction used a total of bitcoins valued at less than $10,000.
If the cost of the bitcoins used in the transaction is more than $10,000, the personal use exception will not be available and CGT will be applicable.
BUYING AND SELLING GOODS AND SERVICES WITH BITCOIN IN A BUSINESS
You must include the Australian dollar value of any bitcoins you get in return for goods or services you provide as part of a business in your taxable income. The value in Australian dollars must be the fair market price at which they may be purchased through a reputable bitcoin exchange. You can claim a tax deduction for any business-related purchases you make using bitcoin, including stock trading.
Mining bitcoins
If you earn a living by mining bitcoins, all money you gain from selling the coins you’ve extracted to other people is taxed. Any expenses incurred as a result of the mining activity are allowable as a deduction.
Losses resulting from the mining activity may also be covered by the non-commercial loss provisions, therefore they may not always be available for offset against other revenue. When calculating taxes at the end of the tax year, bitcoin held as a result of mining and selling bitcoin is recognised as trading stock.
CONDUCTING A BITCOIN EXCHANGE AS TAXPAYERS
If you run a business that involves buying and selling bitcoin as a form of exchange service, the profits from the sale of bitcoin are counted towards your assessable income. Any expenses related to the exchange service, such as the price of buying bitcoin on the open market, are deductible.
DISPOSING OF BITCOIN PURCHASED FOR INVESTMENT
When Trading Bitcoin for Business or profit as opposed to buying and selling it as an investment, there are restrictions that are similar to those that apply to share traders.. Even while there are additional factors to take into account, if you hold bitcoin with the goal of making money in the long run, you are probably an investor, and if you buy and sell bitcoin with the goal of making money in the short term, you are probably a trader.
