11th October, 2022
What’s been happening with cryptocurrency and why should business owners care? Danny Talwar, Head of Tax at Koinly explains.
Cryptocurrencies have come a long way since they were seen as just ‘Bitcoin’ only a few years ago. The sector now encompasses all ‘digital assets’ — everything from crypto tokens to DeFi (Decentralised Finance) and NFTs (Non-Fungible Tokens).
Although crypto might be pushing the boundaries of digital assets and finance regarding taxes, the ATO still views crypto in the same way they do other assets. This means investors will be up for capital gains and income tax. However, regulators are updating guidance and leaning into the crypto world more now than ever.
So what’s been happening in the crypto space, and why should your business care? Crypto tax calculator, Koinly is here to explain.
The Australian Securities and Investment Commission (ASIC) recently surveyed retail investors aged 18 and older who had traded in securities, derivatives, or cryptocurrencies at least once since March 2020.
Of the 1,053 surveyed, 44 percent reported holding at least one cryptocurrency, making it the second most commonly held investment in Australia, trailing shares at 73 percent.
A Roy Morgan survey from early 2022 also pointed to a significant retail presence by Australian investors, with estimates of over $20 billion held in digital assets and cryptocurrencies by approximately one million Aussies.
The crypto space has evolved from being just digital currency and tokens. Australians are just as active as their global counterparts in investing and using cryptocurrencies.
Visa announced in their first quarter results from 2022 that their customers had made over US$2.5 billion in purchases via crypto-linked cards, demonstrating a shift in perceived utility by crypto investors to also spending their crypto. Crypto rewards cards have also increased in popularity with offerings from crypto.com, Gemini, BlockFi and more.
Chainalysis estimates almost half a million people globally now hold NFTs. While pictures of monkeys and cats skyrocketed to millions of dollars in value, NFTs served as an entry point for many in the crypto space, bringing real-world tangibility to digital assets.
Companies have also joined the cryptosphere by onboarding onto custodial services that hold digital assets on their behalf, making it easier than ever to own crypto. This has also allowed many companies to utilise services like DeFi to generate yield on their holdings or purchase other digital assets such as NFTs (like in the case of Visa’s purchase of a cryptopunk in 2021).
In recent years, small businesses have also been at the forefront of crypto adoption. The predominant role crypto plays regarding small businesses is for payments.
Crypto has seen considerable adoption in countries with a lack of payment infrastructure (such as Square and PayPal terminals), with merchants able to transact peer-to-peer using cryptocurrencies and stablecoins.
Both Square and PayPal allow crypto payments, with small businesses able to immediately convert a customer’s crypto to a native fiat currency of their choice or retain crypto within their digital wallet.
Companies such as MicroStrategy, Tesla and Square all hold Bitcoin and crypto on their balance sheets (along with USD, AUD, JPY, GBP, and more), with cryptocurrencies now well-established within small and large businesses.
Countries such as El Salvador have also begun experimenting with Bitcoin and stablecoins to allow for faster payment rails than the incumbent solutions, opening up small businesses to an international world of finance that was previously inaccessible via traditional means.
While all this adoption may sound great, it doesn’t mean that crypto is out of the line of sight when it comes to tax offices.
But how much do tax offices know, and how are cryptocurrencies treated when it comes to taxation?
For starters — the ATO knows if anyone holds or has bought or sold crypto.
The ATO has data matching programs with Australian exchanges, which include information such as transaction history, buys, sells, deposits and withdrawals.
Crypto assets are treated as property for taxation purposes in Australia. Investors are subject to capital gains tax on investments (with CGT discounts for holdings over 12 months) and income tax on any interest generated from yield-generating activities or crypto mining.
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For businesses, it’s also important to understand how stock trading rules apply to crypto.
As cryptocurrencies grow as an asset class into the future, it’s important that crypto investors know their obligations at tax time.
Koinly’s Australian Crypto Tax Guide is a great resource to check out if you’ve got any burning questions about crypto taxes in Australia and how they may relate to you.
The ATO also sent ‘nudge’ letters to hundreds of thousands of Australians over the past few financial years, reminding crypto investors that their holdings are traceable and taxable.
Crypto taxes can be complex and time-consuming, with potentially dozens of transactions spread across numerous blockchains, exchanges and wallets. Keeping a proper record of crypto transactions over multiple financial years is overwhelming, but with crypto tax software such as Koinly, it doesn’t need to be that way.
The ATO recently recommended using a “reputable Australian crypto tax calculator” for proper record-keeping. While some investors are uncertain about their tax obligations, let alone adding crypto into the mix, Koinly automates the entire process.
Koinly is a crypto tax calculator that caters to investors and traders at all levels. With over 700 integrations across the top wallets, exchanges and blockchains, users can generate a tax report which is built to comply with Aussie tax rules.
Koinly facilitates easy accountant review and lodgement for Australian users with a dedicated team of support specialists available by phone Monday to Friday, 9:00am – 4:00pm on (02) 7908 2798.
About Koinly: Koinly is a crypto tax calculator that caters to investors and traders at all levels. Whether it’s crypto, DeFi or NFTs, you can quickly generate a tax report that is built to comply with ATO guidance. Benefit from over 700 integrations across your favourite wallets, exchanges and blockchains.
Disclaimer: Koinly is not a financial or tax adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information presented relates to your unique circumstances.