Trading in digital money is becoming more popular in Australia. Digital currencies include Bitcoin, Ethereum, Litecoin, Dash, Monero and ZCash. There are many tax implications with crypto and it’s best to be on top of it all to avoid paying too much tax, and this includes the GST consequences of trading in crypto.
GST and Digital Money
From 1 July 2017, the Australian Taxation Office (ATO) outlined that sales and purchases of digital money are not subject to GST. You won’t have to pay GST on sales, but you’re also not entitled to claim and GST credits for purchases when you use your digital money, or if you buy and sell digital money.
However, if you’re carrying on a business and transacting digital money, or accepting digital money as a payment for purchases, you may need to consider GST consequences.
Pro Tax Tip: Crypto exchanges operating in Australia need to register with AUSTRAC as a financial service provider.
Are You In Business?
It’s important to understand if you’re running a business in the eye of the ATO when you assess your GST implications. A business engages in repeated activities in order to earn an income and make a profit. Profits can form money, but it can also barter in assets such as other goods and services of equal monetary value.
To be regarded as a business, you’ll need to consider:
- You’ve chosen and trade under a business name, have registered your business and obtained an Australian Business Number (ABN)
- You intend to make a profit
- You make repeated business transactions in a similar manner, which include keeping business records and accounts, establishing a separate bank account for your business, work from a business premises, hold licenses and qualifications
Pro Tax Tip: If your business has an aggregated annual turnover of $75,000, you’ll need to register for GST and report your GST obligations through your Business Activity Statement (BAS). You can claim GST credits on transactions other than on digital money.
GST turnover doesn’t include input taxed credits. Sales of digital currency are input taxed sales. If you only make sales of digital currency you do not need to register for GST. Normal income tax rules still apply regardless of GST.
You can still opt to register for GST when considering the increased time and cost of record keeping and reporting, the fact that GST applies to taxable sales and you could claim GST on creditable purchases and if you can claim GST credits on your reduced credit acquisitions. You may be able to claim GST credits from associated services, such as commission and brokerage costs, service that enable buying and selling your digital currencies and transactions from financial institutions.
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GST-free Sales of Digital Currency
Sales made to non-residents for taxation purposes in Australia will be GST-free. This means that you shouldn’t charge any GST to these sales but you can claim GST credits for costs incurred whilst making those sales. Normal GST registration rules apply.
Using Digital Money To Pay for Goods & Services
Digital money used to purchase goods and services in your business will have no GST consequences in and of itself. In this instance, digital money is considered the same as cash currency.
Receiving Digital Currency As Payment
Receiving digital money as payment for goods and services will incur normal GST rules. If you make a taxable sales of goods or services and received digital money as payment, you are required to collect the GST (or remit 1/11th of the payment) for that sale. This amount should be reported on your BAS in Australian currency.
What Should You Include On Your Tax Invoice?
There are certain requirements to be noted if you send out an invoice in digital currency. As well as the standard information required on invoices:
- The amount payable must be in Australian dollars and include GST payable in Australian dollars
There should be sufficient evidence on the invoice to work out the GST component in Australian dollars in the form of a stated price or value, the conversion rate used or a statement that shows how the GST component was calculated.
What tax do you pay?
In Australia, crypto monies are regarded as assets for the sake of tax implications and are therefore subject to Capital Gains Tax. These gains or losses are reported when you lodge your income tax return. Income tax is paid on gains. There is no separate tax to pay, as capital gains form a part of your total assessable income. The percentage of tax you pay is the same as your personal income tax rate. Any money earned over $18,200 is subject to income tax which is set as a marginal tax rate.
Pro Tax Tip: If you hold crypto for more than a year, you may receive a 50% discount on your capital gains for that particular asset.
Make Sure Your Tax Is Right
The ATO have sophisticated data matching programs that they use when checking trading crypto. It’s likely that they already have your data on your exchanges and can go as far back as 2014. The ATO has your “know your customer” (KYC) information when you signed up for an Australian exchange or wallet.
For the past three years, the ATO issued letters of warning that crypto was taxable and that it needed to be declared in individuals and businesses annual income tax return. Failure to do so would lead to penalties for tax evasion and auditing.
Keeping accurate records is a must when trading in any crypto because every transaction will need to be backed up and justified. You’ll need to calculate the cost basis of each transaction if you decide to sell or dispose of your crypto, and calculate how much tax you’ll be obligated to pay.
You should keep:
- Receipts when crypto is bought, transferred or disposed
- The date of each transaction
- a record of what the transaction is for and who the other party is (this can just be their crypto asset address)
- exchange records
- a record of the value of the crypto asset in Australian dollars at the time of each transaction
- records of agent, accountant and legal costs
- digital wallet records and keys
- a record of software costs that relate to managing your tax affairs.
Pro Tax tip: Keep details for each crypto asset as they are separate CGT assets.
You’ll need to keep your records for five years from the later of when you prepared your records, when the transactions were complete or the year the CGT event happened.
Pro Tax Tip: Keep records long enough to cover your amendment period (usually 2 to 4 years) for an assessment that uses information from the record
Crypto and the tax consequences of crypto are complicated if you carry on a business or accept crypto as digital currency. The changing face of crypto often means that tax implications are a moving target. It’s important to seek professional advice before any financial decisions are made. An ITP tax accountant is well-versed in tax and crypto currency. Phone 1800 367 487 and chat with a friendly professional today.