Is there a legal way to avoid tax on cryptocurrencies in Australia?

Highlights

• The taxation authority of Australia uses the umbrella term ‘crypto assets’ for all cryptocurrencies and NFTs
• Even when someone swaps or exchanges one crypto asset for another, it triggers a capital gains tax event
• The Australian Taxation Office (ATO) mandates that the value of the transaction should be converted to Australian dollars

Crypto assets -- the term used by the Australian Taxation Office (ATO) for all cryptocurrencies and non-fungible tokens (NFT) -- can give rise to a capital gains tax (CGT) event. Tax is a lawful levy, and hence, it is always recommended for an individual to be careful and abide by rules. Evading tax using unfair means is an offence in Australia. However, an individual can look at ways to avoid taxation on crypto or any other asset by using fair means.

How does the ATO levy tax on crypto assets? Is every transaction, be it a trade or gift, subject to tax? Today, let us explore the topic of crypto asset taxation in detail and understand how taxes can be avoided without violating rules.

CGT event

The ATO has specifically described what amounts to a CGT on crypto assets. When the holder of any such asset sells or gifts it, they are liable to pay CGT on it. Besides, trading or swapping one crypto asset for another, for example, buying an ETH token using funds held in Bitcoin, also falls under the ambit of CGT. The conversion of a crypto asset to fiat currency and the purchase of any other good or service using funds held in crypto investments are also CGT events.

To arrive at tax liability, one can subtract capital losses incurred (meaning having sold the asset at a value lower than the purchase price) from capital gains (any value above the purchase price). Additionally, any CGT discount (when crypto is held for more than 12 months) available to the individual can also be subtracted from cryptocurrency-related capital gains. Notably, the ATO mandates that the capital loss on crypto assets cannot be used to reduce any non-crypto-related income.

Data provided by CoinMarketCap.com

No CGT event, and hence no tax

The ATO maintains that any crypto asset held for a short duration and used for buying some item for personal use does not attract CGT. That said, the acquisition cost of such an asset should not exceed AU$10,000. E.g., a grocery store or a movie theatre that accepts payments in cryptocurrency. If a person uses a crypto held for a short duration to purchase goods from such merchants, it does not give rise to a CGT event.

Lastly, the ATO also makes clear that deductions for gifts or donations can be claimed if an individual donates their crypto holding to an organisation that is a recognised deductible gift recipient (DGR). It is stated that donating a crypto asset to a DGR does not attract CGT.

Bottom line

Tax is due when a CGT event arises. CGT is not levied when donating a crypto asset to a DGR. Besides, when the asset is held for a short term and disposed to purchase something for personal consumption, CGT can be avoided. The prerequisite is that a transaction, for example, selling or swapping, should take place to trigger a CGT event.

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