This content is published with the kind permission of the authors, Rhys Jewell and Hugh Riisfeldt of Corrs Chambers Westgarth
Individual investors (tax resident Australia)
1) Are individuals taxed on gains on the sale of cryptocurrencies?
Yes, cryptocurrencies are treated as capital gains tax (CGT) assets (and not as a form of money for tax purposes).
A CGT event happens when an investor disposes of their crypto asset.
If there is a CGT event, the investor may make either a capital gain or capital loss on the disposal of the crypto asset.
A transaction involving a disposal takes place when the investor does any of the following:
- sells a crypto asset
- gifts a crypto asset
- trades, exchanges or swaps a crypto asset for another crypto asset
- converts a crypto asset to Australian or foreign currency; or
- buys goods or services with a crypto asset.
In some circumstances, crypto assets are not kept mainly for investment but for personal use. Where specific conditions are met, crypto assets are not subject to CGT because they are considered to be personal use assets. For example an investor buys cryptocurrencies to make a personal transaction.
A capital gain on the disposal of a crypto asset is disregarded if both:
- it is a personal use asset; and
- the investor acquired it for less than AUD $10,000.
(Sources: “Crypto asset transactions,” “What are crypto assets?”, “Crypto as a personal use asset”: Australian Taxation Office)
Corporate investors (tax resident of the your jurisdiction)
2) Is cryptocurrency subject to yearly mark to market valuation?
Businesses transacting in crypto assets may need to account for them as trading stock or ordinary income (that is, on revenue account rather than as investment capital gains or losses). In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income or a deductible expense depending on the nature of the transaction. Specifically:
Cryptocurrencies when held for the purpose of sale or exchange in the ordinary course of a business, are trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997); and
It follows that an increase in a business’ trading stock’s value over the year is counted as assessable income, while a decrease is considered an allowable deduction. Its value for these purposes may be determined by reference to cost, market selling value or replacement value.
(Sources: “Crypto assets used in business”, "What are crypto assets?": Australian Taxation Office)
3) Are corporations taxed on gains on the sale of cryptocurrencies?
Yes, corporations are taxed on gains on the sale of cryptocurrencies.
Corporations may in some circumstances treat cryptocurrencies as trading stock (see Answer 2 above)
(Sources: "Crypto assets used in business", "What are crypto assets?": Australian Taxation Office)
Common Questions
4) Is payment for goods/services in cryptocurrencies a taxable event?
Yes, it will be a taxable event. However, the disposal of cryptocurrencies kept for the sole purpose of making a personal transaction (i.e. where cryptocurrency is a personal use asset) will not be taxable provided the value is less than AUD 10,000 (see Answer 1 above).
(Source: “Crypto as a personal use asset”: Australian Taxation Office)
5) What is the tax treatment of cryptocurrencies received from mining?
Crypto mining is the process of validating transactions on the blockchain and creating new blocks. The users who create new blocks in this system are known as miners.
If the investors are carrying on a business in crypto mining, either by the investor or by providing services to a mining pool operator, then the crypto assets the investor receives from mining are treated as trading stock of the investors business.
All businesses must account for the value of their trading stock at the:
- end of each income year (closing stock)
- start of the next income year (opening stock).
Not all crypto miners will be carrying on a business, with that determination depending on the investor’s own circumstances.
There can also be goods and service tax implications for crypto miners.
(Sources: “Crypto mining”, “Accounting for trading stock”: Australian Taxation Office)
6) What is the tax treatment of cryptocurrencies received by airdrop?
Airdrops are a marketing tool that distribute crypto assets through a group of people to build their use and popularity.
Some projects 'airdrop' new tokens to existing token holders as a way of increasing the supply of tokens.
The money value of an established token the investor receives by airdrop is ordinary income at the time the investor receives it.
However, in the case of ‘initial allocation airdrops’, where no prior trading of the tokens has occurred, investors do not derive ordinary income or make a capital again at the time of receipt.
A CGT event will occur upon subsequent disposal of the tokens.
(Source: “Staking rewards and airdrops”: Australian Taxation Office)
7) What is the tax treatment of cryptocurrency received from staking?
Rewards from staking are treated as ordinary income.
Subsequent disposal of cryptocurrency earned through staking will be a CGT event.
(Source: “Staking rewards and airdrops”: Australian Taxation Office)
8) What is the tax treatment of lending in cryptocurrencies?
There is limited guidance on lending in cryptocurrencies from the Australian tax authorities. Issuers should engage with the Australian tax authorities in relation to their specific circumstances.
9) What is the tax treatment of a hard fork?
If receiving new crypto assets as a result of a hard fork or chain split, the value of the new crypto asset is not treated as either:
- ordinary income; or
- a capital gain at the time received.
However, the disposal of the new crypto asset will be a CGT event and will require the capital gain or capital loss to be calculated.
Where the original crypto asset no longer exists after the hard fork or chain split, this will be a CGT event (as a ‘cancellation, surrender or similar ending’).
(Source: “Crypto chain splits”: Australian Taxation Office)
10) What is the tax treatment of employee salary in cryptocurrency?
Cryptocurrency received under a valid salary sacrifice arrangement will be treated as a property fringe benefit and is taxable to the employer under the fringe benefit tax rules.
Cryptocurrency received in lieu if salary and wages already earned will result in the employee being taxed on the salary (on a constructive receipt basis) and the employer will be subject to PAYG withholding.
(Sources: “Crypto assets used in business”: Australian Taxation Office)
11) How are gifts of cryptocurrency taxed, including in-game rewards?
Gifting cryptocurrency involves a CGT event (for the giver) and the same CGT consequences will follow as outlined in Answer 1 above. The capital proceeds will be deemed to be the market value of the cryptocurrency gifted.
The receipt of cryptocurrency as a gift (including as an in-game award) should not ordinarily be taxable. However, the subsequent disposal of the cryptocurrency received will involve a CGT event.
(Sources: “Crypto asset prizes and gambling winnings”, “Gifts and donations of crypto assets”: Australian Taxation Office)
12) Is there a tax-deferral when exchanging cryptocurrency/asset?
No
13) Is there any transfer tax on the acquisition of cryptocurrencies?
No
14) Is it obligatory to declare cryptocurrencies to tax authorities?
No obligation to report holding cryptocurrencies to tax authorities. An investor will be required to report the Australian tax consequences of receiving or disposing of cryptocurrency (e.g. ordinary income or capital gains).
15) Are there reporting obligations for cryptocurrency transactions?
Yes there is an obligation to report income (including capital gains) from cryptocurrency transactions.
(Sources: “How to work out and report CGT on crypto”: Australian Taxation Office)
16) How are cryptocurrency transactions treated for VAT/GST purposes?
Cryptocurrency transactions are treated as input tax supplies which means no GST on disposal but also no input tax credit in relation to the GST component of any expenditure incurred in relation to the supply or acquisition of cryptocurrency.
(Sources: “GST and trading digital currency”: Australian Taxation Office)
17) What is the tax treatment of the ICOs for issuers?
There is limited guidance on ICOs for issuers from the Australian tax authorities. Issuers should engage with the Australian tax authorities in relation to their specific circumstances.
18)What is the VAT treatment of the ICOs, including rules on vouchers?
There is limited guidance on ICOs for issuers from the Australian tax authorities. Issuers should engage with the Australian tax authorities in relation to their specific circumstances.
19) Are ICOs liable to any stamp duty?
No
20) What is the tax treatment for individuals of the creation of NFTs?
NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs.
21) What is the tax treatment for corporates of the creation of NFTs?
NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs.
22) Are NFTs taxed differently to cryptocurrencies?
No, NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs.
23) Can tax be deferred when exchanging NFTs for other NFTs/crypto?
No, NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs. See Answer 12 above.
24) What is the tax treatment of gifted NFTs (incl. in-game rewards)?
NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs. See Answer 11 above.
25) Is there any transfer tax when acquiring NFTs for consideration?
NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs. See Answer 13 above.
26) Is it obligatory to declare a holding of NFTs to tax authorities?
NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs. See Answer 14 above.
27) Are there tax reporting obligations specific to NFT transactions?
NFTs are taxed in the same way as cryptocurrencies and the above answers apply equally to NFTs. See Answer 15 above.
28) How are transactions in NFTs treated for VAT purposes?
NFTs are not considered to be a form of digital currency under GST rules and should be taxed in the same way as cryptocurrencies. See Answer 16 above.
However, if an entity operates an NFT marketplace as an “electronic distribution platform”, that entity is responsible for GST on NFT sales that facilitated for offshore sellers to Australian consumers.
(Source: “Non-fungible Tokens”: Australian Taxation Office)
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
