Taxpayers Conducting a Bitcoin Exchange
If you operate a business selling and buying Bitcoin, the proceeds from such sales should be included in your tax return as assessable income. You can claim deductions on expenses that are part of the exchange service, such as the acquisition value of Bitcoin for sale.
Disposal of Bitcoin
The rules for trading Bitcoin, whether for business or investment, are the same as those that apply to share traders rather than investors.
Investors are more likely to hold cryptocurrencies to benefit from long-term gains. Traders are interested in short-term buying and selling to make a profit.
If you purchase Bitcoin for investment purposes, the profits from sales are not classified as assessable income, which means you cannot claim deductions. Instead, CGT applies. If you can prove that Bitcoin was used for personal purposes, you may be able to apply for an asset exemption.
You cannot apply for an asset exemption and CGT where the cost exceeds $10,000. CGT is calculated as the increase in the cryptocurrency value versus acquisition and sale. If you make a profit, the profit is considered as assessable income, thereby classifying you as a trader instead of an investor.
Record-Keeping of Bitcoin
If you deal in Bitcoin you need to keep detailed records. Here are a few tips to keep in mind:
- Ensure you record the date of every transaction;
- Record the amount of the transaction time – use a reputable online exchange for an Australian dollar amount;
- Record the details of the transaction;
- You can make a note of associated expenses, whether there are fees or commissions involved; and
- You can also detail information about the other party based on what is available. If no information is available, the Bitcoin public address is sufficient.
If you wish to use the CGT personal use exemption, you need to be able to demonstrate that your intention was to use the cryptocurrency to purchase goods or services.
