More and more people have begun to invest in cryptocurrency, but aren’t really sure of the tax implications of their investment. According to the ATO, if you have exchanged cryptocurrency for goods, cash or other cryptocurrencies, this is considered to be a disposal for the purposes of capital gains tax and you may need to include a capital gain or loss in your income tax return. The ATO offers these tips to assist you.

1 Disposal of cryptocurrency

You must report a disposal of cryptocurrency for capital gains tax purposes if you either:

■ exchange one cryptocurrency for another cryptocurrency

■ trade, sell or gift cryptocurrency

■ convert cryptocurrency to a fiat currency, for example to Australian dollars (AUD).

If you only transfer cryptocurrency from one wallet to another wallet while maintaining ownership of the coin, it is not considered a disposal of cryptocurrency for tax purposes.

If your cryptocurrency holding reduces during this transfer to cover

the network fee, the transaction fee is a disposal and has capital gain consequences.

2. Calculating capital gains tax (CGT) on cryptocurrency

Convert your cryptocurrency purchases and sales into AUD to calculate your capital gain or loss.

A capital gain or loss is the difference between your:

■ cost base (cost of ownership – including the purchase price of the coin plus certain other costs associated with acquiring, holding and disposing of it), and

■ capital proceeds (what you receive or the market value of what you receive) when you

dispose of your cryptocurrency.

If you purchase cryptocurrency using AUD, the amount you pay is included in your cost

base. If you acquire a cryptocurrency by exchanging it for another

cryptocurrency, your cost base is the market value in AUD of the cryptocurrency you used

at the time you purchased the coin.