Guidance for Crypto Currency

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Crypto currency has become a popular topic of conversation for many. Digital currency is an emerging asset class.

CBA has become Australia’s first bank to offer customers the ability to buy, sell and hold Crypto via its App, in a partnership with the world’s largest regulated Crypto exchange, Gemini, and leading blockchain analysis firm, Chainalysis.  

What is Crypto and how does it work?

Crypto represents a form of digital currency in the form of digital tokens and are stored in a digital “wallet” (offline wallets are more secure as online wallets are open to security breaches). The digital system allows for people to make payments to each other via an online system. This form of currency is volatile and what you invest you should be prepared to lose.

A user’s wallet has a set of unique key codes that are used to authorize transactions on the blockchain network. Blockchain is a decentralized ledger of all transactions on a peer-to-peer network. Completed blocks include latest transactions and are added to the blockchain. They are stored in chronological order as an open and verifiable record. This technology creates a record that cant be changed without the agreement of the rest of the network.

What are Airdrops?

Airdrops are the crypto investor receives coins or cryptocurrency tokens, often for free or for executing a simple task. Crypto airdrops might be a reward for signing up for a newsletter, following social media, or attracting more customers to the platform. They are often used as a marketing strategy for the Crypto currency to promote their brand. Airdrops are considered income when received. When they are sold though, you are required to pay Capital Gains Tax on the difference between the cost base and the consideration on sale.

What is Mining?

Mining is the process of attaching new transactions in the form  of blocks to the blockchain. In this process, new bitcoins are credited to miners, adding to the coins in circulation.

Some of the most common Crypto currencies include – Bitcoin, Ether, Litecoin, Ripple and Stable Coin but there are many more currencies in the market.

The market for Crypto is not regulated as these assets are not considered to be “financial products.” If you lose your currency through hacking, because the market is regulated, there is little chance that you will receive your investment back.

Record Keeping

Record keeping requirements are the same for acquisition and disposal of assets such as shares. Crypto is a capital gains tax asset for taxation purposes. Capital Gains Tax discount rules apply of the asset has been held for more than 12 months.

You need to keep records of all your transactions associated with acquiring, holding and disposing of cryptocurrency. You will need to keep records for five years after you dispose of cryptocurrency.

You should keep the following records:

Acquisition:

  • The purchase price in AUD
  • The date and time of the transaction
  • Transaction details
  • Commission/brokerage fees on purchase
  • Additional costs re purchase
  • Exchange record transaction details

While holding cryptocurrency remember to keep:

  • Software costs related to managing your Crypto
  • Digital wallet records and keys
  • Documents showing the date and quantity of cryptocurrency received by airdrop, as these are generally recorded as income

Disposal:

  • The cryptocurrency details
  • The sale or transfer price in AUD
  • The date and time of the transaction
  • What the transaction was for
  • Commission or brokerage fees on the sale or transfer
  • Exchange records
  • Calculation of capital gain or loss

ATO link to recording keeping for digital currency – https://www.ato.gov.au/General/gen/tax-treatment-of-crypto-currencies-in-australia—specifically-bitcoin/?anchor=Recordkeeping#Recordkeeping

Crypto Currency Tax Software sites exist to help you with tax reports so you can accurately report your capital gains/losses from Crypto Trading.

Some of the Most popular include:

Koinly  – https://koinly.io/

Crypto Tax Calculator – https://cryptotaxcalculator.io/au/

It is important that you do your research before you invest in Crypto and you understand the digital currency and the record keeping and tax implications involved with trading.

The tax office are looking closely at Crypto trading and are aware that over 600,000 taxpayers have invested in Crypto of recent years. They are also aware that many taxpayers are not clear on reporting and record keeping around Crypto. THE ATO are data matching Crypto transactions, so accurate record keeping is paramount.

Resources:

You can find out more about Crypto from the Reserve Bank here https://www.rba.gov.au/education/resources/explainers/cryptocurrencies.html

ASIC also has a podcast for first time Cryto investors https://asic.gov.au/about-asic/news-centre/videos-and-podcasts/the-asic-podcast/episode-65-crypto-assets-for-first-time-investors/

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