The ATO has released updated information on claiming cryptocurrency losses and gains in your tax return.
The first point to understand is that gains and losses from crypto are only reported in your tax return when you dispose of it, i.e.
- You sell it
- Convert it to a fiat currency
- Exchange it for another type of asset (including other coins)
- Buy something with it, etc.
You cannot recognize market fluctuations or claim a loss when the value of your crypto assets changes until the loss is realized or crystallized.
When to report gains and losses from cryptocurrency disposal.
The gains and losses from the disposal of cryptocurrency should be reported in your tax return in the year that the disposal occurred.
Gains on Crypto:
If you made a capital gain on crypto that was held as an investment, and you held the crypto for more than 12 months. You may only be taxed on 50% of the gain using the Capital Gains Tax (CGT) discount method meaning you halve the tax you pay.
Loss on Crypto:
If you made a loss on your cryptocurrency investment (capital loss) when you disposed of it, you can generally offset the loss against the capital gains you might have (unless the crypto is a personal use asset). But you can only offset capital losses against capital gains.
You cannot offset these losses against other forms of income like salary and wages, unfortunately.
If you don’t have any capital gains to offset, you can hold the losses and carry them forward for future years where you can apply them against capital gains made in that later year.
Airdrops and staking rewards:
If you earned income from crypto such as airdrops or staking rewards, then these also need to be reported in your tax return.
Remember, keep records of your crypto transactions. The ATO has sophisticated data matching programs in place, and cryptocurrency reporting is a major area of focus.
If you have crypto transactions and need help in preparing your tax returns, feel free to contact
Warren Maris (BCom, FIPA, FFA) Managing Director of Magnus Business Advisers and Accountants on 07 3483 0100.