- As cryptocurrencies gain popularity in this digital age, nations have decided to put cryptocurrency investments and capital gains under tax regulations.
- Some countries have still not regulated cryptocurrencies as personal use assets, but those that did have different rules for specific situations.
- In this article, we have focused on cryptocurrency tax regulation in Australia and the US. However, the Australian Taxation Office and Internal Revenue Service will delve into more detailed data when it comes to tax in their countries.
The hectic world of cryptocurrency never stops twisting and turning.
Cryptocurrencies, primarily bitcoin, have evolved since they appeared for the first time over a decade ago. With significant technological developments and younger generations being highly interested in digital storage of money, it is no wonder that some cryptocurrency tokens are worth thousands of dollars each.
When cryptocurrencies were first introduced, governments did not pay attention to the revolutionised assets. However, since 2017 when bitcoin experienced its first peak, authorities have figured out a way to get some advantage from the situation – cryptocurrency tax regulations.
Some countries have still not considered cryptocurrencies as a personal gain under taxation laws. However, those that did have controlled it differently.
Before delving into each state's system, let us recall the basics of cryptocurrency and related terminology.
Cryptocurrency, sometimes referred to as a digital asset, is a relatively novel online currency that is operated on blockchain technology. Investors saw potential that cryptos bring as blockchain offers almost complete anonymity due to military-grade security.
As most people already know, no cryptocurrency exists in physical form. They are usually stored in digital wallets as coins. However, some investors may prefer paying for an online broker to keep cryptos for them.
These digital assets can be traded on specialised trading markets. The most popular cryptocurrency exchange is Coinbase, based in the US, following with Kraken, Binance, and Jaxx.
Bitcoin was the first cryptocurrency ever created, remaining the most widely held up to this day. After its start date in 2009, bitcoin showed high volatility and had a significant alteration in value almost overnight. Today, as per XE.com, one bitcoin token is worth A$21,907.69 (at 1:47 PM AEDT). The cryptocurrencies Ethereum, Tether, XRP, and Chainlink are the next on cryptocurrency exchange marketplaces.
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Finally, individuals can use cryptocurrencies for any transaction, as long as the store accepts them as a mode of payment. In recent years, there have been some retailers that accept cryptocurrencies only as a way of exchange for their goods and services. If investors prefer to keep money in forms of fiat (traditional) currencies, they can exchange cryptos for dollars, euros, pounds, or others.
How is cryptocurrency regulated in Australia?
Australia is one of the first countries to have set clear regulations for cryptocurrencies. The government has imposed a capital gains tax (CGT) for cryptocurrencies if investors sell their cryptocurrency assets.
The ATO (Australian Taxation Office) gave firm instructions about what crypto disposal means:
- When investors gift or sell digital assets,
- After shareholders trade cryptocurrencies on exchange markets or when they dispose of one type of crypto for another,
- When stockholders convert cryptocurrency in Australian dollars or any other fiat currency,
- After purchasing goods or obtaining services with cryptos.
The taxation institution does not apply tax rates for some cryptocurrency transactions, depending on an individual’s situation. However, when investors make a profit from any on the elements mentioned above, they will need to pay tax for a portion of the entire gain from the sold cryptocurrency.
Investments and personal use assets
What ATO seems to be targeting the most are cryptocurrency investments and businesses that operate with cryptos. In cases where shareholders hold on to digital assets for at least 12 months, the ATO might reduce the tax rate that needs to be settled.
In the eyes of the Australian tax law, shareholders that have multiple cryptocurrencies in their investment portfolio will need to calculate different CGT for each digital asset held. For example, bitcoin may have higher tax rates due to the vastest value, while NEO or Stellar might get lower tax fees because their worth is not as significant.
When individuals use cryptos for short-term purchases, ATO is not likely to apply CGT on them. As long as the personal usage does not cross A$10,000, the tax is unlikely to be imposed.
One can refer to the Australian Taxation Office website for further information around cryptocurrency tax calculations
How is cryptocurrency regulated in the US?
Talking about the US, the Internal Revenue Service (IRS) handles all cryptocurrency regulations.
Cryptocurrencies have been considered as personal property since 2014 in the US, so Americans were required to report all crypto gains in their annual tax returns for the last six years.
IRS demands all crypto gains to be converted in US dollars, or any other traditional currency. By doing so, the institution requires defining a fair market price for cryptocurrencies in fiat currencies on the day when each American claim tax returns. For that reason, it might be a good idea to keep regularly updated financial books as IRS can approach anytime for unpaid debt.
When investors sell cryptocurrencies seeing an opportunity to make money, the IRS will apply a personal asset tax rate. For comparison, the same thing would happen if those same stockholders decided to sell a house or stocks for personal gain.
However, the most significant aspect to consider is the character of cryptocurrency disposal. IRS looks into the core reason for the sale and applies 0, 15, or 20 per cent tax as a capital gain, accordingly.
For easier cryptocurrency regulation and tax calculations for personal use, TurboTax is the only website in the US that offers guidance through this complicated process. However, if one is not entirely confident about TurboTax’s reliability, one should consider hiring a professional accountant that would do the job.
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