Tax Consequences of Cryptocurrency
With the increased popularity of investing in and trading cryptocurrencies, it is worth reminding ourselves of the tax consequences of digital assets, as the rules can be complicated.
Cryptocurrency may appear to be just another form of money, however the view adopted by the ATO for these digital assets is similar to investing in shares. The tax treatment is fundamentally the same and any gains or losses are assessed as income under the capital gains tax (CGT) regime.
When will there be a difference in tax treatments?
If you are a simple investor in cryptocurrency, you may have bought $10,000 worth of the currency, and held onto it for five years to then sell it for say, $25,000. The $15,000 "profit" from that sale would most likely then be treated as a capital gain. You would be required to pay tax on half of that capital gain (after applying the CGT 50% general discount) at your marginal tax rate.
However, if you are trading in cryptocurrency on a regular basis as well as mining for coins. This might indicate that you are actually in the "business" of trading cryptocurrency (the same as when taxpayers are in the business of share trading). When trading, you are taxed on your profits as income and not as capital gains.
In most cases, this would not make a big difference to the final tax result, as a trader does not typically hold their cryptocurrency/shares for more than a year. Therefore, they would not be entitled to access the CGT 50% general discount, as it requires you to hold the asset for more than 12 months to be eligible.
It is important to understand that the ATO receives the transaction details and trading data from all the cryptocurrency trading houses (including overseas trading houses).
Extending administrative relief for companies to use technology
The Government has passed legislation renewing the temporary relief that allows companies to use technology to meet regulatory requirements under the Corporations Act 2001.
These temporary relief measures will allow companies to hold virtual meetings and use electronic communications to send meeting-materials and execute documents until 31 March 2022. This should ensure that companies can meet their obligations as they continue to deal with the uncertainty of the COVID pandemic.
With the extension of this temporary relief, the Government will now seek to introduce permanent reforms later this year to give companies the flexibility to use technology to hold meetings, such as hybrid meetings, and sign and send documents.
Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.