Do I Pay Taxes On Crypto If I Don’t Sell?

Cryptocurrency gets a bad rap as a shadowy digital landscape where cloaked figures make hushed deals with dark money. The reality is much more boring … and taxable. The Australian Taxation Office (ATO) is not as oblivious to your crypto dealings as you may wish it was. However, the situation is pretty simple for those who employ a HODL (buy and hold) strategy.

The Australian Government does not tax unsold crypto. The ATO classifies cryptocurrencies as an asset, where taxes are assessed after they’ve been sold, traded, exchanged, converted, given away, or used to buy something. Private investors holding crypto for more than 12 months also pay less tax.

Taxes are not an exciting or sexy subject, but they are one of the few guarantees in life (that you must pay them no matter what). At the same time, many people prefer not to think about taxes until they are forced to fill out the forms or hire somebody to do the tedious paperwork. We strongly recommend that you understand Australia’s crypto tax policies as an essential part of your financial wealth strategy. Some more enticing high-risk, high-reward maneuvers could have a high tax cost.

Do Australian Private Crypto Investors Pay Tax?

Australian private crypto investors fall into a different tax category than those viewed as running a crypto business, such as traders. The Australian Taxation Office (ATO) treats crypto the same as it does shares in firms (i.e., stocks) and classifies them as assets. Therefore, unsold cryptocurrency is not taxed. However, once a cryptocurrency is sold, its profits are subject to capital gains tax (CGT).

Money earned from cryptocurrency through interest or other crypto rewards is also taxable. However, depending on the reward, it might fall under the category of income tax rather than CGT.

It is crucial to remember that Australian private investors are given a 50% discount on their CGT rate if they have held on to the cryptocurrency for a minimum of 12 months. Any cryptocurrency that has been sold in under 12 months will be subject to the full rate.

Cryptocurrency wealth strategies that require quick movement of currency with lots of trading, such as arbitrage trading, will be taxed at the full CGT rate.

Who Qualifies As A Private Crypto Investor In Australia?

Most Australians who invest in cryptocurrency probably regard themselves as private crypto investor. However, even if you do not officially have a cryptocurrency business or operate as a trader in a professional capacity, you might have unwittingly disqualified yourself as a private investor by taking part in strategies outside the HODL model (buy and hold).

Private investors in Australia are cryptocurrency holders who don’t spend much time buying and selling. These investors are eligible for the 50% CGT if they’ve waited over 12 months to make the sale or trade.

Professional traders do not qualify for the 50% CGT discount. Even if the cryptocurrency they’ve sold was held for over 12 months, they are still ineligible as they are not considered a private investor.

Traders are generally registered as a business. However, even individuals not registered as a business may be viewed as such by the ATO if they frequently trade cryptocurrency.

The fine line between private investor and trader can get blurred if:

Cryptocurrency is being sold or traded a few times a week
You take part in multiple transactions

It is advised to keep records of all movements of cryptocurrency. Should you submit your tax returns as a private investor and the ATO believes this might be incorrect, they will ask you to explain why you should not be taxed in the higher bracket.

For example, perhaps during a crash, your activity picked up dramatically. If you have records, you could then prove that it was for a particular situation and that generally, you purchase crypto once a month and hold on to it.

Records should include the following information:

All crypto receipts for purchases, trades, swops, fees, etc
Records of all exchanges used
Records of all wallets
Records and receipts of any financial or legal costs
Records of any tax software costs

What Is Australia’s Capital Gains Tax Rate?

Australian private investors pay a CGT rate based on their personal income tax rate. In 2022, any Australian earning more than $18,201 must pay personal income tax. Also, any crypto investor must declare any crypto sold or traded in that same tax year.

However, if the investor had held any cryptocurrency for over 12 months, then the CGT rate will be subject to only half of the investor’s income tax rate. This significant discount should be factored in when debating if it is worth selling or trading your cryptocurrency.

How Is Taxable Crypto Profit Calculated In Australia?

Australia’s capital gains tax on cryptocurrency only applies to the profits made in the sale or trade. Fees paid in the transactions are subtracted from the profits. The precise tax calculations for this can become complicated, and it is best to consult a tax professional. But in the most simplistic terms, it works out as the following:

(Crypto Sale Price – Fees) – (Crypto Purchase Price + Fees) = Taxable Crypto Profit

To give a basic example.

A crypto coin called ‘Faux-Coin’ was bought for $100

The purchase fee was $5

Faux-Coin was sold for $150

The sale fee was $6

The total cost of buying Faux-Coin is $105

The total sale of Faux-Coin is $144

$144 – $105 = $39

So the CGT will be taxed on $39.

Let’s say the investor’s income tax rate is 20%.

If the Faux-Coin was less than 12 months, the CGT tax owed is:

$39 X 20% = $7.80

However, if that Faux-Coin was more than 12 months old, the CGT tax owed is:

$39 X 10% = $3.90 dollars

What Counts As A Crypto Sale In Australia?

Australian private investors only have to pay CGT on crypto that has been sold. However, many private investors are confused about what the ATO considers a sale.

In the eyes of the ATO, crypto has been sold if it has:

Been sold (duh!)
Traded
Given away as a gift
Exchanged into a different currency
Swapped
Used to buy goods

Is Buying Cryptocurrency Taxable In Australia?

Australian private investors are not taxed for buying cryptocurrency with fiat currency, such as Aussie or US dollars. This cryptocurrency will also remain untaxed until it is “sold.”

Exceptions to this can occur. Buying cryptocurrency on a foreign exchange may leave you subject to that country’s taxes.

Also, if you buy cryptocurrency with another cryptocurrency, you can be left paying CGT on the cryptocurrency spent.

For example, let’s say you held some LUNA at the start of its May 2022 crash. You sensed something was wrong early on and wanted out. However, instead of selling your LUNA for Aussie dollars, you used it to buy some Bitcoin. Your LUNA “sale” price to buy the Bitcoin needs to be recorded on your taxes, regardless if it was a profit or loss.

However, the Bitcoin you bought with your LUNA does not have to be recorded on your taxes until you’ve “sold” it. So should you keep that Bitcoin for over a year before doing anything further, it will be eligible for the 50% CGT discount rate.

Are Crypto Donations Classified As Gifts In Australia?

Donations are not considered gifts in Australian taxes. Therefore, contributions made in crypto to a registered charitable organization are not taxed. You are still required to calculate the cryptocurrency’s capital gain or loss based on the date of the donation. However, this figure is reported as a deduction rather than a capital gain.

However, giving your mom some Bitcoin for Mother’s Day does not count as a donation. It is, however, a lovely and thoughtful gift.

Remember, you should give your mom that gift after holding onto the currency for a year. You will pay 50% more capital gains on it if you give it to her before that time. The currency’s “sell” value will be calculated on the currency’s worth on the day the gift is transferred.

Is Lost Cryptocurrency Taxed In Australia?

Cryptocurrency can be lost or stolen through scams or forgetting your wallet password. Technically speaking, this can be recorded as a capital loss, but you need a lot of evidence to back it up.

Also, if the exchange has reimbursed your missing funds due to a security glitch on their side that gave a hacker access or took pity on you after falling for a scam, then you cannot claim it on your taxes as a loss.

However, having your coin crash in price does not count as a loss until it has been “realized.” Cryptocurrency values go up and down, and these are not “realized” while you still hold the currency.

If your cryptocurrency has truly gone flat, you can’t record the loss until you’ve sold it. This could be done by:

Selling the currency for a pittance
Swapping the currency for another currency or token
Buy something with the meager amount (gum?)
Giving your mom your currency (maybe not a Mother’s Day gift, though)
Seeing if you can send your currency or tokens to a burner wallet

Is Moving Crypto Between Wallets Count As A Crypto Sale?

Australian private investors can move their cryptocurrency between their wallets without being taxed. However, each of the wallets must be registered in your name. You must also keep records of all movement of your cryptocurrency, including between your wallets.

However, any fees you pay to move your cryptocurrency between wallets could be subject to CGT if you paid the fees with fiat currency, such as Aussie dollars, US dollars, or British pounds. However, if you paid with cryptocurrency, you’ve now “purchased” something with your cryptocurrency. Purchases with cryptocurrency can be considered a sale and thus subject to CGT.

Do Crypto Wallet Fees Fall Under The Personal Use Asset Exemption?

Some Australian investors try to avoid paying the CGT on the crypto used to pay for wallet transfer fees by using the ‘personal use’ asset exemption.

The personal use asset exemption is when somebody buys cryptocurrency to make a quick purchase. It only applies to purchases made under the $10,000 threshold.

For example, if you spot an NFT you’d like to buy for $900, but it must be purchased using “Faux-Coin,” then you buy $900 worth of Faux-Coin to make the purchase. This scenario might fall under the personal use asset exemption with proper transition records. So the $900 worth of Faux-Coin would not be subject to CGT.

However, wallet exchange fees are rarely so straightforward. You must prove that you bought that cryptocurrency strictly to pay for the wallet transaction fees. If you want to use this exemption, it would be best to consult a tax professional. Those who try to do this independently are more than likely to fail to make a good case and find themselves in hot water.

How Does The ATO Track My Crypto Investments And Sales?

The ATO can track any Australian holding an account with a designated service provider. The ATO has had a data-sharing program with all Australian exchanges and can access information as early as 2014. They can see when investors buy, sell, or earn crypto rewards, such as interest. So please, never try and pull a ‘fast-one.’ Pay your taxes, and do the right thing.

Are Australians Taxed For Crypto On Foreign Exchanges?

Due to how transactions are recorded in the blockchain, the ATO can track your cryptocurrency deals even after you’ve moved on to a foreign exchange. They simply follow the trail. It is difficult and inadvisable to hide your cryptocurrency transactions from the ATO.

If you had money on an Australian exchange or bank account and it moved off those platforms, you need to be able to explain where it went. Even if the ATO can’t track it through their own means, they can note the missing currency and audit you. During the ATO’s audit, you must explain the missing funds.

Do Australian Investors Have To Report Crypto Losses On Taxes?

Crypto losses must be reported on an Australian tax return. However, while it is not pleasant to have a loss, it does help reduce the total taxes you will owe. But you can only take advantage of your loss if you report it.

Again, this can become incredibly complicated, and a tax professional is required for complete and accurate advice. But in simplistic terms, losses are subtracted from the total capital gains tax owed.

In the most basic sense, it works as:

Cryptocurrency Profits – Cryptocurrency Losses = Total Taxable Profits

The total taxable profits would be the number used to calculate your CGT. But again, the reality is typically less straightforward.

Conclusion

The buy and hold strategy might not be the most exciting, adrenaline-filled, quick money maker. However, the substantial 50% discount given to Australian private investors who hold onto their currency for at least a year could be the most financially advantageous strategy.