As published in The Q Review Summer 2021/22 Magazine.  Follow the link to Subscribe and receive your FREE copy each quarter!

Having recently raised the matter of crypto in The Q Review, it is best we briefly mention how they are taxed.

Cryptocurrencies and Tax

Firstly, the thing that may come as a surprise to some, though it really shouldn’t, is that ‘yes’ crypto currencies are subject to income tax here in Australia! And no, you should not attempt to hide your crypto from the Australian Taxation Office (“ATO”).

If you deal in crypto via one of the Australian exchanges such as CoinSpot, BTC, Binance and the like, expect your data to be shared directly with the ATO. And if you fail to report it in your tax returns, expect a query letter asking why with a threat of penalties or worse.

If you access your crypto via other means, firstly, be careful, and secondly, yes it still must be reported! When it comes to the tax treatment of crypto, here are the fundamentals –

  • For investors cryptocurrencies are considered assets under Australian tax law. They are not considered to be a form of cash.
  • Technically, cryptocurrencies are considered a Capital Gains Tax (“CGT”) Asset, this means when you sell crypto, you trigger a Capital Gains Tax Event.
  • If you make a profit, you derive a Capital Gain. If you held the crypto for more than 12 months, you may qualify for the 50% CGT Discount (not applicable to companies, or only a One Third Discount if sold via a Self-Managed Superannuation Fund).
  • If you make a loss, you incur a Capital Loss. Capital Losses can ONLY be offset against Capital Gains.
  • Any incidental costs incurred in relation to your crypto investing will be added to the Cost Base of your crypto Asset. This means the costs are not tax deductible against any other income. They can only be used to reduce the Capital Gain made (or increase the Capital Loss incurred) when the crypto is sold.

Tax Obligations When Using Contractors

The ATO have recently updated their guidance regarding the tax obligations when using Contractors.

The most crucial element being that if you engage a Contractor who trades under their own name and Australian Business Number (“ABN”) and you pay the Contractor ‘mainly’ for their labour, you are required to meet the superannuation obligations that apply to ordinary employees (including offering Super Choice and paying an additional 10% super to the Contractor’s nominated fund).

This is an oft overlooked requirement, and if a business gets this wrong, you will not only have to pay the additional 10% which you had not budgeted for, but also pay late payment penalties as well as interest on the unpaid amount.

The other important element that many small business owners are still coming to grips with is the requirement to report all payments made to Contractors (including those trading through companies, trusts and partnerships) to the ATO via Taxable Payments Reporting.

If you are a business providing any of the following services, the Taxable Payments Reporting obligations apply to you –

  • building and construction services
  • cleaning services
  • courier services
  • road freight services
  • information technology (IT) services
  • security, investigation or surveillance services
  • mixed services (a business that provides one or more of the services listed above)

Keep an eye out for Part 2 of this series as of January 13th, 2022.