A number of cryptocurrency investors have had a very good year, despite recent declines in the market. Many enthusiasts have seen substantial returns with many cashing out their earnings. A recent report in the Financial Times indicated that research has shown that more than US$30 billion worth of BTC has been exchanged for fiat since the beginning of the year, and the Australian Tax Office (ATO) wants to make sure it gets its cut.
The ATO considers cryptocurrency to be an asset. As such, earnings are considered to be capital gains, just like those seen with real estate sales and returns on shares. This makes all earnings taxable under current tax laws.
Cryptocurrency enthusiasts often argue that cryptocurrency, since it is an anonymous payment system, it isn’t part of the normal tax system. However, the ATO points out that, once converted to fiat, the organization has many ways to identify large or unusual deposits that would trigger a closer look at the individual’s financial situation.
Liz Russell, a senior tax agent at Australia’s online accounting firm etax, told Business Insider, “Let’s say you originally bought $5,000 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 $8,500, then the $3,500 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 on the sale of shares or an investment property.”
If traders take a loss in crypto, following the same tax rules, that can be considered a write-off. Russell explained, “If you made a $3,000 loss on the sale of cryptocurrency but a $4,000 gain on the sale of shares, your net capital gain would be the $4,000 gain minus the $3,000 loss, equalling a $1,000 capital gain.”
There is an option for those that want to cash out and avoid paying taxes to the government. Several towns in Australia, such as Agnes Water and the Town of 1770 are both crypto-friendly tourist spots. Visitors can pay for virtually everything using the digital currency, providing a way to use the coins without incurring the wrath of the taxman.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.