Disclaimer: This article is for general informational purposes only. It is not meant as tax or investment advice, since individual circumstances will vary.
The crypto world is fast moving. Regulation, on the other hand, is notoriously slow. While regulation has lagged the developments in the crypto sector for years, it is gradually catching up, as governments seek to understand and place frameworks of rules around these new technologies.
Perhaps unsurprisingly, the tax authorities have generally had a clearer idea of where crypto fits within their understanding of the world, and what the implications are for crypto users.
So what are the laws and regulations that Australian crypto traders should know about in 2022?
This is a general guide for Australians who want to buy and sell cryptocurrencies. If you’re running a business or an investment firm, looking to raise money through a crowdsale of some form, or involved in more unusual activities in the space, there are likely other rules that will apply to you and you’re encouraged to seek specialist advice.
Crypto isn’t fully regulated in Australia, although there are plans afoot to change that. There are also lots of misconceptions, particularly around taxation. With that in mind, it’s well worth doing a little research to ensure that you’re aware of the current regulatory landscape, that you stay as safe as possible, and that you’re aware of your obligations to the ATO.
Who Can Buy Crypto In Australia?
Almost anyone can buy crypto in Australia, which officially legalised cryptocurrencies in 2017. So long as you’re at least 18 (also the age at which you’re allowed to invest in stocks and other assets), you’ll be able to use a crypto exchange.
Individuals and crypto businesses, including exchanges, need to comply with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) laws. These aren’t onerous for regular users. If you’re buying or trading small amounts of crypto, you won’t need to do much. You will, however, need to provide certain documentation, such as proof of identity and address, so if that’s a problem for one reason or another, buying crypto is possibly not something you’ll be able to do easily or safely.
What Are The Tax Implications?
For most users, it’s straightforward to register with an exchange and to buy and sell crypto. What many people do not realise is that there are tax implications to investing in and trading crypto. In many cases, this won’t be an issue, but if you sell crypto at a profit over a certain threshold in the course of a year, you’ll need to pay tax on your gains.
If you have registered with an Australian crypto exchange, the Australian Taxation Office (ATO) probably already knows about your trading activities, since exchanges are required to pass on relevant information, which will be cross-checked against your tax returns. These records stretch back to 2014, and over the past couple of years a large number of crypto investors have received letters from the ATO instructing them to disclose their trades or potentially face penalties.
The good news is that crypto isn’t subject to GST, only capital gains tax (CGT). You pay this on gains on any disposals you make. For reference, a ‘disposal’ can include a number of activities, including:
- Selling a crypto for AUD
- Trading one crypto for another
- Spending crypto for goods or services
- Giving away crypto
A gain is simply calculated as the price in AUD at the time of disposal, minus your ‘cost basis’ – basically how much the crypto was worth when you acquired it. Of course, you may also lose money on disposals, which you can use to offset against future gains (not gains from the past year). For example, if you bought 1 ETH at $500/ETH and sold it at $1,500, that’s a gain of $1,000. If you earned 1 ETH at $2,000/ETH and sold it at $1,800, that’s a loss of $200. In this instance, you would also need to pay income tax on that initial $2,000 of earnings, even though it was paid in ETH.
The tax year in Australia runs from 1 July to 30 June, so you’ll need to total all of your crypto gains in this period to include in your tax return. One rule you might want to take advantage of is the 50% reduction in CGT if you hold assets for more than a year.
For most retail crypto users, these rules will apply. If you are a professional trader, or own a business, there will be a different set of rules for paying tax. You can check the ATO’s rules on cryptoasset investment, and the differences between trading and investing.
While you pay taxes on capital gains, and it’s known as ‘capital gains tax’, this is not treated any differently to income tax in practice. The rate you’ll pay on capital gains depends on how much you earn – with higher earners paying proportionally more. The first $18,201, whether CGT or income, is tax free. At the top level, you’ll pay 45% of everything over $180,000, which is one of the reasons it’s good to know about the 50% reduction rule.
The situation for most crypto investors is therefore fairly simple: crypto is treated like any other commodity for tax purposes, and is added to your total income to determine how much tax you need to pay.
If you mine bitcoin or other cryptos, you should read up on the ATO’s rules around this, since you may qualify as either a hobbyist or business miner for tax purposes. Mined coins will probably count as income. Airdrops and staking rewards will also count towards income tax, with your cost basis being the value of the crypto at the point you receive it. This crypto may then also be subject to CGT if you later sell it at a profit.
In principle, Australia’s treatment of crypto for taxes is straightforward. Where it can become complicated is if you have made hundreds or even thousands of trades, which need to be processed to calculate your total gains. Fortunately, there are applications like Koinly, TokenTax and many others that plug into exchanges’ APIs and do all the work automatically. Most exchanges will both provide you with a list of your trades, and with the APIs to enter into the tax software. TimeX, one of the foremost Australian crypto exchanges, offers this functionality, which can considerably reduce the complexity of gathering the information you need to make a complete declaration of capital gains.
Where Should You Buy Crypto?
You should always purchase crypto from a regulated exchange like TimeX. This not only ensures that you stay compliant, but also helps to guarantee the safety of your money. Australian exchanges should be registered with AUSTRAC, the country’s financial intelligence agency. This means you will have the protections granted to consumers when engaging with any other financial product or service. It also means you’ll be able to use your Australian bank account to buy crypto, and to receive funds after selling for Australian dollars.
Bear in mind too that other crypto products you use, whether on an exchange or off it, should be compliant if you are to receive the full protections afforded to consumers. For example, TimeX supports different stablecoins, which are a vital way of holding funds on the blockchain without being subject to price volatility. AUDT is a stablecoin that is not only backed by AUD, but that is fully compliant with AUSTRAC. Most other popular stablecoins are not regulated in this way.
How Should You Store Crypto?
Once you’ve bought crypto, you can choose whether to hold it on an exchange, or whether to withdraw it to an external wallet. If you know what you’re doing, then an external wallet is generally preferable.
Hot wallets are connected to the internet and are suitable for smaller amounts of crypto, and for everyday use. Cold wallets are safer, since they are not connected to the web and are practically impossible to hack, but they are more complicated to use. Find out more about different wallet types.
However, compliant exchanges should be safe enough for most users to store their crypto, especially if you activate the additional security processes that most will offer, such as two-factor authentication. Find out more in How To Secure Your TimeX Account. You should never leave funds on an unregulated exchange.
What Is The Future Of Australian Crypto Regulation?
Australia has proven to be a forward-looking jurisdiction in terms of crypto regulation, and its tax treatment of crypto assets is logical and reasonable. Further regulation is set to clarify the landscape for crypto users in the coming months.
In August 2022, the government announced its intention to reform regulation for the crypto space. The first step towards this will be a ‘token mapping’ exercise, which will categorise crypto assets according to their technology, features and use cases. The aim is to nuance regulation further, and ensure that any gaps in the current frameworks are covered. Because technology moves fast, there have been developments that are not covered under the existing rules, and some which do not neatly fit into current categories. The exercise may provide greater clarity around different types of stablecoin, and organisational structures like DAOs.
While this guidance will be wide-ranging, it will likely not affect retail traders who simply want to buy and sell cryptocurrencies. Unfortunately for traders, it seems that the rules on capital gains tax are not up for review.