This is from whirlpool forums but seems like a nice summary to me.
Thanks to the people who have mentioned me above. It’s a pleasure serving this community. To those who don’t know, I am a qualified Australian tax accountant with experience advising on bitcoin and cryptocurrency related tax matters. Very briefly, these are the basic tax implications to consider:
- Where a person acquires bitcoin with the intention of speculating that the price will increase, then any profit made may be fully taxable. The most likely scenario for this to apply is where you acquire bitcoin with the sole intention of making a profit by selling the bitcoin in the short to medium term (days, weeks or a few months). E.g. regular bitcoin trading.
Trading cryptocurrency creates a taxable event each time you dispose of one for another. E.g. if you bought 1 Bitcoin on 1/1/17 for $1,000 and then traded that 1 Bitcoin for 20 Ether on 30/3/17 when the 1 Bitcoin was worth $3,000, then you have made a profit of $2,000 (3k – 1k) on disposing of 1 Bitcoin and the cost base for the 20 Ether is $3,000. So when you eventually dipose of that Ether you make a profit if it is worth more than $3,000. Even if you continue to hold the Ether, you still need to report the $2,000 profit on your tax return, irrespective that you have never traded back into AUD. (note these are made up dates and prices)
Keeping good records is the key. It’ll make it much easier for your Accountant and save you in accounting fees. Your Accountant won’t need to know the blockchain records (transaction ID or wallet info), they’ll need the following info:
Date of trade
USD/AUD value of Crypto acquired
Following on from the above example, and saying the 20 Ether was traded on 30/6/17 for 25 Dash when the USD value of the 20 Ether was $6,000, the trade info your Accountant needs is:
Date of trade: 1/1/17
Crypto acquired: BTC
Quantity acquired: 1
USD/AUD value of Crypto acquired: $1,000 AUD
Crypto sold: AUD
Quantity sold: 1,000
Date of trade: 30/3/17
Crypto acquired: ETH
Quantity acquired: 20
USD/AUD value of Crypto acquired: $3,000 AUD
Crypto sold: BTC
Quantity sold: 1
Tells us you made a profit of $2,000 on disposal of 1 BTC.
Date of trade: 30/6/17
Crypto acquired: DASH
Quantity acquired: 25
USD/AUD value of Crypto acquired: $6,000 USD
Crypto sold: ETH
Quantity sold: 20
If the AUD/USD rate on 30/6/17 was 0.75, then the $6,000 USD was equivalent to $8,000 AUD. So, this tells us you made a profit of $5,000 (8k – 3k) on disposal of 20 ETH.
Some exchanges let you export your trade history into a spreadsheet (csv). Although these spreadsheets are helpful, if you provide this raw info to your Accountant then they’ll have to manipulate the information in order to work out the above information. This can be a very timely (and costly) exercise if you have many trades. This is why it is very important for you to maintain good records and begin doing so as early as possible.
If you have acquired bitcoin for a purpose other than a profit-making undertaking or business, then any profit made may qualify for the capital gains tax 50% discount. E.g. bought bitcoin for a dual purpose of learning about this ground-breaking technology but also held because it might increase in value over the long term. What this would mean is that only 50% of the profit is taxed (as per 50% discount). It is important to note that bitcoin owned for less than 12 months is not eligible for the 50% discount, hence 100% of the profit is taxable. Also the discount may be less if you have capital losses. E.g. bitcoin hodlers.
In limited circumstances profit on the disposal of bitcoin can be tax-free. This applies if you are eligible for the “personal use exemption”. E.g. purchase bitcoin for less than $10,000 and spend it on personal expenses (usually within a short period of time). Criteria for the personal use exemption is:
(a) Intention at time of acquisition is to use for personal use
(b) Whilst holding intention remains to use for personal use
© Dispose of bitcoin by using it for personal use
(d) Bitcoin cost $10,000 or less when acquired
It’s not a good idea to rely on this exemption without seeking tailored tax advice. It’s very difficult to meet this criteria because you need to show you had very little, or no, intention of holding as an investment. Definitely not saying this isn’t possible though and I know of circumstances when people have qualified.
Importantly, I think there is a community held misconception which is that bitcoin profits aren’t taxable unless they exceed $10,000. This is incorrect and is because of the misunderstanding regarding the ‘personal use exemption’. Bitcoin profits can be taxed from the first $1 of profit.
Regarding mining, it’s possible the receipt of the mining reward (your share of bitcoin earned by contributing hashing power) is taxable as income. Alternatively, it can be that you’re only taxed when you subsequently sell the mining reward.
Hope that helps. I’ll periodically check back to answer any questions.