1.5 Million Australian Crypto Owners Confused Over Tax Rules

Photo from Unsplash

According to a survey conducted by the University of Queensland, approximately a third of respondents said they were not sure whether they had to pay taxes on their cryptocurrency holdings.

Under current laws, cryptocurrencies are treated as assets, which means they are subject to capital gains tax and need to be reported annually to the Australian Tax Office or face potential investigation and fines.

Crypto As Assets

Cryptocurrency is treated as an asset by Australian tax law. Whenever a crypto holder sells their cryptocurrency or even trades it for another coin, they need to calculate their profit and losses on the trade. Any loss can be offset against profits from the same tax year, but any cumulative gains will be subject to capital gains tax.

This is true whether the individual trades professionally or not, and even if the crypto has come as winnings from one of Australia’s top Bitcoin casinos.

These casinos have become a popular option, according to crypto expert Michael Graw because they offer sizable bonuses and jackpots, but they do require that players record their deposits and withdrawals to properly calculate annual tax liabilities.

Traders And Investors

Tax requirements do vary according to whether a person is deemed a trader or an investor. A trader is somebody who buys and sells cryptocurrencies regularly, in order to try and make a profit.

An investor is somebody who holds their cryptocurrency over a long period of time to make long-term gains. If a person holds their cryptocurrency for 12 months or longer, they are considered an investor and may be entitled to a 50% discount on the capital gains tax they must pay.

Calculating Tax Liability

Liability is calculated by taking profits and losses from every trade. Any losses can be offset against profits, and if the individual has a net gain over the financial year, they are liable to pay taxes on that amount.

All assets are combined when making these calculations, so if the individual also buys and sells shares or another form of asset, all losses can be offset in the same way.

ATO Investigative Powers

All exchanges and wallets that are licensed in Australia must gather KYC, or Know Your Customer, details from their users. These are reported to the Australian Tax Office, which can use the information to help them investigate individual users and determine whether they are properly reporting their crypto holdings in their tax returns.

Fines and other punishments may be handed out to those who do not comply with the proper regulations. Some holders may use offshore exchanges or decentralized exchanges, but these are not regulated by the Australian government and, therefore, do not offer the same protections to users.

Crypto Survey Results

The study by the University of Queensland suggests that 34% of respondents were not aware they needed to report crypto trades or pay tax on their profits, which means as many as 1.5 million people could fall foul of tax laws and face fines.

The study also revealed other details regarding how Australians trade cryptocurrency. It revealed that around 60% of people use a cryptocurrency software wallet, while only 16.9% use a hardware wallet.

Crypto Storage

Hardware wallets are considered the safest option, other than custodial services, because they are not connected to the Internet except when the user needs to transfer crypto to a different wallet.

Some software wallets may disconnect from the Internet most of the time, but they still reside on devices that do connect, which means they are still somewhat susceptible to outside attacks.

Investing In Bitcoin

Another possible way to invest in Bitcoins is through spot ETFs. ETFs were launched at the beginning of this year, and while they are commonly seen as an institutional investment tool, they can also be used by individual investors.

Because they are a longer-term investment and do not require daily buying and selling, they are not only easier to manage for most crypto holders but they also usually ensure that the buyer falls under the category of cryptocurrency investor.

While Bitcoin ETFs have become fairly easy to get hold of, and there is a good selection of these products available, other ETF options are somewhat limited. Ethereum funds can be found, but other altcoins have yet to get the same treatment. It is widely expected that Solana or Ripple will follow next, but there has been no sign of this happening just yet.

According to reports, there is also $1 billion of Bitcoin and other cryptocurrencies currently held in self-managed super funds. Self-managed super funds offer greater flexibility than funds managed by third parties but they are a riskier alternative. They require considerable research and a lot more active management than third-party options.