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How crypto assets work
Crypto assets are a digital representation of value that you can transfer, store or trade electronically. This also includes non-fungible tokens (NFTs).
Crypto generally operates independently of a central bank, authority or government. Regardless of this any transactions involving crypto assets are still subject to the same tax rules as assets generally. Depending on how you acquire, hold and dispose of the asset will determine the tax treatment. Crypto assets are not considered to be a form of money for tax purposes.
Tax outcomes of using and transacting with crypto assets
Crypto assets can be acquired or disposed of on a crypto trading platform or directly from a digital or hardware wallet. They can be exchanged for other crypto assets, fiat currency or goods and services. The way you transact with crypto assets will determine how they are treated for tax purposes. The most common use is as an investment.
In most cases crypto assets are taxed as capital gains tax (CGT), including self-managed super funds (SMSFs) investing in crypto assests. Rewards for staking crypto are taxed as ordinary income.
Business that transact in crypto assets may need to account for them as trading stock or ordinary income.
Common crypto assets
These include coins and tokens such as:
- Bitcoin, a cryptocurrency
- USDC, a stablecoin
- DAI, an investment token
- GALA, a game token
- BAYC, a non-fungible token
For tax purposes each crypto asset you hold needs to be treated as a separate asset.
GST and digital currency
Sales and purchases of digital currency is not subject to GST from 1 July 2017. GST should not be charged on the sale of digital currency and you are not entitled to GST credits for purchases of digital currency.
There are no GST consequences of buying or selling digital currency if you are not carrying on a business. If you are carrying on a business in relation to digital currency you need to consider any GST consequences that may arise.
If you were registered for GST and there have been sales and purchases of digital currency prior to the 1st July 2017, then you will need to pay GST and you are entitled to GST credits on any transactions relating to digital currency.
This is a digital unit of value that has all the following characteristics:
- fully interchangeable with another unit of the same digital currency for the purpose of its use as payment
- can be provided as payment for any types of purchases
- generally available to the public free of any substantial restrictions
- not denominated in any country’s currency
- the value is not derived from or dependent on anything else
- does not give an entitlement or privileges to receive something else.
What is not digital currency?
Things that are not digital currency for GST purposes include:
- loyalty points provided by retailers that can only be redeemed for products and services specified by that loyalty scheme
- ‘currency’ used in online multiplayer games, that cannot be used outside the game under which the ‘currency’ is made available
- ‘digital currency’ with value based on something else or that gives an entitlement or privileges to something else. For example, a token that is aligned with an Australian or foreign currency, or gives you an entitlement to use software application services.
When you sell an asset that is subject to CGT, it is called a CGT event. It is the time at which you make a capital gain or loss.
Other CGT events include when there is a loss or destruction of an asset, or creating contractual or other rights.
Sale or disposal of an assets
The CGT event occurs when you enter into a contract if a contract of sale exists. E.g., if you sell a house the CGT event would happen on the date of the contract and not on the settlement date.
If no contract of sale exists, the CGT event is when you stop being the asset’s owner. E.g., when you sell shares the CGT event happens on the sale date.
Your capital gain or loss is the difference between the selling price less the original cost of the assets less other associated costs with acquiring, holding and disposing of the asset.
Refer to the ATO website for more information on CGT.
Self-Managed Super Funds investing in crypto assets
Acquiring crypto assets
While SMSFs are not prohibited from investing in crypto assets, the investment must:
- Be allowed under the fund’s trust deed
- Be in accordance with the fund’s investment strategy
- Comply with the same regulatory requirements as apply to other investments – as set out in the Superannuation Industry (Supervision) Act (SISA) and Superannuation Industry Supervision Regulations (SISR).
If you’d like more information on SMSFs and crypto assets you can contact our office on (03)9848 5933 or contact us.
Listen to the ATO prodcast to find out about crypto assets.