ATO Issues Guidance On Cryptocurrencies – Specifically Bitcoin

The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on the blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.

ATO’s view and guidance on “Cryptocurrency”

This information represents ATO’s current view of the income tax implications of Cryptocurrency. According to ATO, cryptocurrency is neither money nor Australian or foreign currency. Rather, it is property and is an asset for capital gains tax (CGT) purposes.

· Cryptocurrency as an investment

If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency. You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. If the capital proceeds from the disposal of the cryptocurrency are less than its cost base, you will make a capital loss.

· Personal use asset

Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded. Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption. This is subject to the $ 10,000 personal use asset limit.

· Using cryptocurrency for business transactions

If you receive cryptocurrency for goods or services you provide as part of your business, you need to include the value of the cryptocurrency in Australian dollars as part of your ordinary income. This is the same process as receiving any other non-cash consideration under a barter transaction. Where you purchase business items using cryptocurrency (including trading stock) you are entitled to a deduction based on the arm’s length value of the item acquired.

· Paying salary or wages in cryptocurrency

Where an employee receives cryptocurrency as remuneration from employer, the payment of the cryptocurrency will be a fringe benefit if that is part of a salary sacrifice arrangement and the employer will be subject to FBT Tax.

In the absence of a valid salary sacrifice agreement , the employee is considered to have derived their normal salary or wages and the employer will need to meet their PAYG obligations on the Australian dollar value of the cryptocurrency it pays to the employee.

· Record keeping

You need to keep the following records in relation to your cryptocurrency

- transactions: the date of the transactions

- the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)

- what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).

- Further record keeping guidance will be issued as ATO is currently consulting industry and other interested stakeholders.

For further information please contact your RCB Advisors team member.

Source: www.ato.gov.au