Liz Russell, a senior tax agenet at etax.com.au, said in a statement that the ATO would be very strict in using its data-matching technology to make sure that Australians who had made any gains through trading in cryptocurrencies paid any taxes that were due.
“It’s important to know how the ATO classifies cryptocurrency, as this determines how it’s treated for taxation purposes. There is a long-running debate over what cryptocurrency actually is – whether it’s an asset, currency or collectible – but the ATO has made it clear that it treats cryptocurrency as an asset," she said.
“That means it’s subject to the same capital gains tax provisions that apply to real estate and shares.”
Though cryptocurrency movement was anonymous, the ATO had the ability to track transactions once it had been converted to fiat currency.
“Let’s say you originally bought $5000 worth of XEM, which is one of the lesser-known coins consistently in the top 10 of cryptocurrency market caps. If you later traded it for fiat currency of $8500, then the $3500 in profit is considered a capital gain, and you’ll need to add it to your assessable income for the financial year – much like you would any gains you make the sale of shares or an investment property,” Russell explained.
On the other hand, if trading cryptocurrency had led to a loss, then the amount from the capital gains made from another asset could be deducted in the same financial year or a later year - and therefore reduce tax liability.
“For example if you made a $3000 loss on the sale of cryptocurrency but a $4000 gain on the sale of shares, your net capital gain would be the $4000 gain minus the $3,000 loss, equalling a $1,000 capital gain," Russell said.
She said the sole exception to paying CGT on cryptocurrency was when purchasing items or services for personal use.
“The small beachside town of Agnes-Water-1770 in Queensland recently made headlines for being Australia’s first ‘digital currency-friendly’ tourist town, enabling visitors to use cryptocurrency for everything from restaurants, cafes and beauty salons through to train, coach and transfer tickets via the local travel agent," she said.
"For these sorts of transactions, no CGT is payable when disposing of cryptocurrency."