The ATO and Bitcoin – what investors in Cryptocurrency need to know

Cryptocurrencies and Taxes

Bitcoin has been a whirl wind over the most recent financial year. All of us know at least one person who has made and lost a fortune in this innovative investment. This naturally has caused the Australian Taxation Office (ATO) to be interested in the goings on of this phenomenon and have been keeping a close eye on things. Although there is no specific legislation, nor has the issue been tested in court, the ATO has expressed their views on how this new currency is going to be taxed.

What is Bitcoin?

Bitcoin is a cryptocurrency, meaning it is a digital currency which uses different forms of encryption to create currency and the encryption is its form of regulation. There is no central bank for this currency and no government has any control over it. It is worth highlighting that Bitcoin is the grandfather of cryptocurrency, but there have been many variations on this which are all individual currencies. These include PutinCoin, Trump Coin and even Dogecoin based on an internet meme; all with legitimate value.

ATO Views

The ATO has been building up a few examples of how to treat Bitcoin and other cryptocurrencies but are yet to put them into any legislation or test them in court.

The general view of the ATO is that Bitcoin isn’t money, nor is it foreign currency. The ATO believes that this should be treated as “property” and has reversed its view that cryptocurrencies are subject to GST.

For non-business use, the ATO view is that Bitcoin falls under the banner of other intangible and tangible items for CGT Purposes. Ultimately this means that the income tax/CGT classification of bitcoin depends on the reason it has been acquired and the way in which it is held.

Bitcoin would be considered a personal asset if the investment is being used as actual currency. This means that the investment has been used in exchange for actual goods or services online. In this case, gains with a cost base of less than $10,000 will be disregarded. However, this is unlikely for most investors in Bitcoin and doesn’t apply where it is first converted into cash and then spent on goods and services.

So where does this leave most individual investors?

For most individuals, Bitcoin has been purchased as an investment with an intention to be sold at a later date at an increased value. The profit will be assessed as a capital gain, assuming it is held on a capital account. This is similar to other Australian investments like shares and investment properties which are taxed on the proceeds less the original purchase price. With Bitcoin, the Australian dollar cost of when the Bitcoin was originally purchased, less the Australian dollars received when the Bitcoin was sold. This will be eligible for the CGT discount for individuals if it has been held for more than 12 months, much like other Australian CGT Assets.

However, people could also be ‘trading’ in cryptocurrencies in a businesslike manner and find themselves outside CGT and taxed on ordinary revenue account. Bitcoin mining would be an example of this.

Bitcoin mining

There is also the possibility that some Australians have been mining Bitcoin which is essentially the process of slowly creating new bitcoins. The ATO is treating this as a business with the Bitcoins mined being the revenue and the costs involved such as energy costs and computer equipment being able to be expensed.

If you want to know more about how Bitcoin fortunes are taxed, please contact one of our Tax Specialists today on (03) 9835 8200 or alternatively, complete your details below and we’ll be in touch.

About the Author
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Gareth Livingston
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