Cryptocurrencies.  Unarguably a new area of investment in the world and one in which many have struggled to quantify the tax consequences of.  After many years of very little guidance from the Australian Taxation Office (‘ATO’), we have in recent months seen an outpouring of communication from them putting us on notice.  They are finally beginning to “understand” how to treat them.  Or perhaps we are being generous.  Perhaps it’s simply they have recognised the massive potential for revenue leakage as a result of cryptocurrencies.  Either way, they are coming and they want us to know it.  We have heard stories here at Venta of stockbroking firms and other investment houses being required to provide the ATO with detailed lists of all their clients who have traded in crypto currencies over the last 1 – 5 years.  Now is not the time to be taking risks in this area.

We here at Venta have many clients investing in crypto currencies (and as at the date of publication we have not been asked to provide a detailed list to the ATO), we do believe it is an area which is widely misunderstood and requiring significant guidance and advice.  So, as we welcome the new financial year twe are on-hand to help with some of the basics.  At it’s most basic level, cryptocurrencies like Bitcoin and Ethereum are treated similarly to gains from other investments such as shares.

We hear and see people making a lot of money in Crypto Assets however, people do not understand the tax side of Crypto Assets.  People also do not understand that Crypto is a currency rather than an asset.  This year the ATO will be writing to around 100,000 tax payers with cryptocurrency assets urging them to review their previously lodged tax returns.  Cryptocurrency is not tax free or only taxable when the holdings are cashed back into Australian dollars.    Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to Capital Gains Tax (‘CGT’) and must be reported.

CGT also applies to the disposal of non-fungible tokens.  Holding a cryptocurrency for at least 12 months as an investment may mean you are entitled to a CGT discount if you have made a capital gain.  In limited circumstances cryptocurrency may be a personal use asset, according to the ATO.  The best tip for your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address.

Cryptocurrencies are a decentralized currency which uses peer-to-peer technology, this enables all functions such as currency issuing, transaction processing and verification to be carried out collectively by the network.

However, the backside of it being a decentralised currency which is free from government manipulation or interference, there is no central authority to ensure that things run smoothly or to back the value of the coin or token.  As you will be well aware the most popular Cryptocurrency is Bitcoin, which will be our main focus.

Now, I am not the biggest fan of Cryptocurrency due to the pure lack of people clearly not understanding the fundamental lack of it being taxable.  If we go way back to when the first stock market started and the New World began trading with each other.  Due to wanting to make more money by investors pooling in their savings and becoming business partners and co-owners with individual shares in their businesses to form joint-stock companies.  We can see Crypto assets might be the new stock market.  Now in the early 17th century only the wealth could really benefit from this and they did, and clearly that is why we have a massive Stock Exchange Market and crashes where both the wealthy and the not so wealthy lose a lot of money.  If we have a look at this history the trading market came along purely due to Sea Voyages needing people to invest and put up money for the voyage as people living there relied heavily on the sea voyage to be successful to be able to bring back goods.  However Cryptocurrency was purely invented to make more money.  So no real need for it apart from people wanting to make money.  But as we know people love money and with the Digital World being the upgraded “New World” I cannot assure you that Cryptocurrencies are not going anywhere and might possibly take over the world in 300 years but it could, we cannot predict the future.

As Warren Buffett says there is no unique value at all in Cryptocurrency, and investors that own Crypto hope that somebody else comes along and pays you more money for them later on.  Cryptocurrency does not reproduce; they don’t provide dividends and they can’t really do anything.  Cryptocurrency is like gambling and hoping you will win big.

Crypto is hard to understand and people get into enough trouble just trying to understand normal stock exchanges on the ASX let alone in an even worse position in something you don’t know anything about.  If you have invested in Cryptocurrency and have made a substantial amount of money, Good for you and let us know if you require assistance in lodging your income tax returns.

Or if you lost a lot of money, inform us and we can make sure you are lodging your income tax returns correctly.

Contact Venta if you have any questions or would like to discuss your Crypto Assets.