Blog Layout
A Comprehensive Guide to Capital Gains Tax on Crypto
Cryptocurrency has become a popular investment category in recent years. As with any asset, investors must understand their tax obligations, including Capital Gains Tax (CGT), which applies when crypto assets are sold or exchanged. This article will guide you through working out capital gains on crypto when CGT applies and how to report it.
When Capital Gains Tax Applies to Crypto
For most Australian taxpayers, cryptocurrency is classified as a CGT asset with CGT payable when certain events occur, including:
- Selling crypto for fiat currency (e.g. Australian dollars)
- Gifting crypto to another person
- Trading or swapping one crypto asset for another
- Purchasing goods or services with crypto
- Converting crypto to another type of currency
Each of these scenarios counts as a CGT event and may result in either a capital gain or a capital loss.
Working Out the Timing of the CGT Event
The timing of the CGT event is essential for calculating your tax obligations. Generally, a CGT event occurs when you dispose of your crypto asset, which could be when you:
- Sell the asset
- Exchange or trade one crypto asset for another
- Use it to pay for goods or services
Other CGT events can include destroying or losing your assets and creating new contractual rights. It's essential to keep accurate records of these events to ensure that your CGT calculations are correct.
How to Calculate Your Capital Gains Tax
To calculate your CGT, you must assess whether you made a capital gain or a loss. Here's how.
- Determine the cost base: This is what you originally paid for the crypto asset, including transaction fees and other incidental costs.
- Determine the capital proceeds: This is the value you received from the disposal of the crypto asset. For instance, if you sold your crypto, the sale price (in Australian dollars) is your capital proceeds.
- Calculate the difference: If your capital proceeds exceed your cost base, you have made a capital gain. If they are less, you have incurred a capital loss.
- Apply the CGT discount: If you held your crypto asset for more than 12 months before the CGT event, you may be entitled to a 50% discount on your capital gain (if you are an individual taxpayer).
Remember, while capital losses can reduce your capital gains in the same tax year, they cannot be deducted from other income.
Reporting CGT on Crypto in Your Tax Return
Once you've calculated your capital gain or loss, the next step is to report it in your tax return.
- Individual Taxpayers can report capital gains or losses using the Capital Gains section in myTax if lodging online or following the paper return instructions manually.
- For Companies, Trusts, or Funds: The Capital Gains Tax Schedule should be used to report any CGT events involving crypto assets.
Keeping Records for Crypto Transactions
To make your CGT calculations and reporting easier, it's vital to maintain accurate records of all crypto transactions, including:
- The dates of each transaction
- The value of the cryptocurrency in Australian dollars at the time of each transaction
- What the transaction was for (e.g., purchase, sale, swap)
- Details of any associated transaction fees
You can also use online calculators and record-keeping tools provided by tax authorities to simplify this process.
Know Your Obligations
Paying capital gains tax on crypto may seem daunting but understanding when CGT applies and how to calculate it is essential for every investor. Crypto assets are treated like other investment assets for tax purposes, so staying informed and organized will help you avoid potential pitfalls and ensure a smooth tax season. For more information, visit the ATO's advice on Crypto CGT or contact Ascent Accountants for advice.
Need help with your accounting?
Thinking of starting a business? Here’s what you need to know! Read our latest blog to learn six key things to consider before starting your business.
Donating to charity is a great way to give back, but did you know not all donations are tax-deductible? To claim a deduction, your donation must be made to a Deductible Gift Recipient (DGR), and can’t receive anything in return. Read our latest blog to learn what you can claim and how to maximise your tax return.
If you're selling property in Australia for $750,000 or more, you must obtain an ATO Clearance Certificate to prove you're an Australian tax resident — otherwise, 12.5% of your sale could be withheld!
Thinking about investing but not sure whether to go with ETFs or managed funds? Both offer diversification, professional management, and access to a range of assets — but they work in different ways. Which one suits your investment strategy best? Learn more in our latest blog!
You’ve likely heard the adage: "The only certainties in life are death and taxes." While death and probate taxes were abolished in Australia by the early 1980s, a potential "inheritance tax by disguise" could still be lurking in your superannuation or pension fund… The good news? With the right planning, this tax burden is avoidable . At Ascent Accountants, we’re here to empower you with the knowledge and strategies to optimise your financial legacy. Here's what you need to know about managing taxes on your super and leaving more for your loved ones. Why your super might be taxed after you’re gone. Superannuation funds enjoy generous tax concessions while you’re alive: Accumulation phase: Earnings are taxed at just 15%, with a reduced 10% tax on capital gains. Pension phase: Balances up to $1.9 million are completely tax-free. However, a tax trap arises when super funds are passed to non-dependent beneficiaries (e.g., independent adult children). In such cases, a lump sum death benefit can attract a tax of 15% or 30%, plus a 2% Medicare levy. On the other hand, funds transferred between tax-dependent beneficiaries, such as between spouses, are not taxed. Understanding this distinction is key to effective estate planning. Strategies to minimise or eliminate super taxes. 1. Understand the taxable component. Only the taxable portion of your super balance is subject to this tax. By assessing the taxable versus tax-free components of your fund, you can calculate the potential tax liability for your beneficiaries. For young, healthy retirees with a long retirement horizon, the tax savings from super's concessional tax environment may outweigh the risks of tax on their death. However, older retirees or those with health concerns might find the potential tax liability for beneficiaries outweighs the benefits. 2. Withdraw funds from super. If you decide the risk of tax to your beneficiaries is too high, consider withdrawing funds from the super environment. These funds can then be invested in your name or another structure. Just remember that this is a complex decision requiring tailored advice to ensure your financial security while managing tax implications. 3. Implement a re-contribution strategy. A re-contribution strategy aims to increase the tax-free component of your super balance. You simply withdraw funds with a high taxable component, then re-contribute them as non-concessional contributions. While this approach can significantly reduce the tax liability , it must be executed carefully due to restrictions like contribution caps , work test requirements (for those over 74), and total super balance limits. In some cases, contributing to a spouse’s super fund can offer additional benefits, such as improving Centrelink eligibility. 4. Nominate your estate. Funds paid directly to non-dependent beneficiaries from super are subject to the Medicare levy. By nominating your estate as the beneficiary and having funds distributed via your will, this 2% levy can be avoided. However, directing benefits via your estate has its drawbacks. It’s vital to weigh this option against alternative strategies, especially if direct beneficiary payments better align with your financial goals. 5. Appoint a power of attorney. While your will is essential, an enduring power of attorney is equally important. This person can make financial decisions on your behalf if you become incapacitated, ensuring the best outcomes for your beneficiaries. Take the next step towards financial certainty. Want to ensure your beneficiaries receive the maximum benefit from your hard-earned wealth? We specialise in helping individuals and families navigate these complexities . From re-contribution strategies to estate nominations, we provide personalised guidance to protect your financial legacy. Reach out to Ascent Accountants . Together, we can develop a strategy to minimise taxes and maximise your legacy for the people who matter most .
In the world of home financing, an interest-only loan can be a strategic choice, particularly for investors. With the high cost of mortgages impacting household budgets, an interest-only loan may provide a temporary financial cushion. However, it's essential to evaluate your unique circumstances and understand the implications of this loan type before making a decision. What is an interest-only loan? An interest-only loan allows you to pay only the interest component of your loan for a specified period, typically ranging from three to ten years. This means you won’t be reducing the loan’s principal during this period, which results in lower monthly repayments compared to a standard principal-and-interest loan. Why choose interest-only loans for investment properties? One of the key advantages of an interest-only loan is its potential tax benefits for property investors . The interest component of a loan for a rental property is tax-deductible, whereas principal repayments are not. By opting for an interest-only loan, you’re only paying the portion that is tax-deductible, which can enhance the cash flow on your investment property. For investors, this structure provides an opportunity to claim higher tax deductions. This can be particularly beneficial when managing other expenses or reinvesting in additional properties. However, the benefit largely hinges on the property’s ability to generate income and increase in value over time. Key considerations. While interest-only loans offer flexibility and immediate cash flow benefits, they come with certain risks. It’s important to thoroughly understand these factors: End of interest-only period: When the interest-only period ends, the loan will convert to a principal-and-interest loan, leading to significantly higher monthly repayments. Borrowers must be prepared for this transition to avoid financial strain. No equity growth: Since you’re not paying off the principal during the interest-only period, the loan balance remains unchanged. This means you’re not building equity in your property unless its market value increases. In the event of a market downturn, you could face the risk of negative equity. Loan servicing requirements: Lenders require documentation such as tax returns, employment verification, and statements of assets and liabilities to assess your ability to service the loan. Carefully review your financial situation to ensure you can meet repayment obligations both now and in the future. Budgeting for the future: An interest-only loan is not a permanent solution. Use the reduced repayment period wisely to build a financial buffer. Saving during this time can help you prepare for higher repayments once the principal component is added. Final thoughts. Interest-only loans can be a valuable tool for investors , especially when managed strategically. By focusing on the tax-deductible interest component and leveraging the reduced repayment period, you can optimise your investment’s financial potential. However, it’s essential to plan for the future, anticipate higher repayments , and seek professional advice to mitigate risks. With careful planning, an interest-only loan could be the key to achieving your investment goals . The Importance of professional advice. Navigating the complexities of interest-only loans can be challenging . Consulting with financial professionals is critical to making informed decisions. We can help you understand how this loan aligns with your broader financial goals, ensure you’re not overextending yourself, and guide you in structuring your investments for long-term success. Contact us today to get started.
