A tax expert's tips on claiming crypto losses on tax, and how to work out capital gains

So, you’ve bought crypto. You’re not alone. Though the statistics are inexact, some surveys suggest as many as 21% of Australian adults^[1] now own crypto assets (and that a further 8% have owned them in the past).

If you managed to make gains in the past year, you may need to pay extra tax. Or you may be able to use losses to offset other gains you have made.

The tricky part is working out those gains or losses. This isn’t based just on when you convert your crypto assets into Australian dollars. Every transaction – or what the tax office calls a “disposal” – triggers a taxable point. So you need to keep track of these.

How the tax office treats crypto assets

The Australian Tax Office treats cryptocurrency holdings like other investment assets, such as company shares or real estate.

In general, if its market value (in Australian dollars) when you dispose of your crypto is greater than when you bought it, you’ve made a capital gain. If it’s lower, you’ve made a loss.

How capital gains are taxed differ for businesses and professional traders. But for individuals – “mum and dad” investors – the key point is that capital gains tax is effectively the same as income tax. A capital gain is added to your assessable income, and therefore to the income tax you owe.

A capital loss can be offset against capital gains but not against other assessable income. If you have no capital gains in a given year, the loss can be carried forward to a future year.

The key issue, then, is how to calculate your net capital gain^[2] – by working out the capital gain or loss for each “taxable event”.

Read more: Almost no one uses Bitcoin as currency, new data proves. It's actually more like gambling^[3]

How do I record my gains (or losses)

Generally, from the tax office’s^[4] perspective, a taxable event occurs every time you dispose or transact with crypto – whether that be paying for goods or services, swapping it for another crypto asset, gifting it, or converting it into cash.

The big exception to this is if you use cryptocurrency as actual currency, to buy goods for personal use – such as a meal, concert ticket or white goods for your home. If you use crypto to buy a personal use asset for less than A$10,000, you can usually disregard the capital gain. This is known as the personal use exemption.

However, there are rules^[5] around this to prevent gaming the system.

The longer you’ve held crypto, the more likely the tax office is to regard it as an investment, and deny the exemption. It doesn’t provide any specific time frame but the example on its website^[6] mentions longer than six months as indicating the crypto is being held an investment.

For everything else, any crypto disposal is a taxable event, even if it doesn’t involve conversion to fiat currency (in our case, Australian dollars).

Calculating the capital gain

Let’s consider a scenario where you decided to swap one crypto asset for another.

Say you bought A$1,000 worth of the world’s second-largest cryptocurrency, Ether, in late 2020 when it was trading at about A$1,000 a unit.

In early 2023, when Ether’s market value hits A$3,000, you decided to swap it all for the world’s largest cryptocurrency, Bitcoin (perhaps because you thought Bitcoin had better long-term prospects).

That transaction wouldn’t have involved Australian dollars – but the tax office still expects you to report the capital gain as if it had.

So what was the capital gain on that hypothetical transaction?

It is the difference between the market value (in Australian dollars) of the Ether when bought (A$1,000) and the market value of the Bitcoin acquired (A$3,000). The capital gain would be A$2,000.

Do I pay tax on all my capital gain?

Actually no, so long as you’ve owned the asset for at least 12 months.

For any asset held longer than 12 months, you only have to pay tax on half the capital gain – what the tax office describes as a 50% discount^[7]. (This was a controversial reform introduced by the Howard government in 1999.)

So continuing with the Ether-Bitcoin scenario from above, because you owned the Ether for long enough, that transaction would only add A$1,000 to your assessable income, rather than A$2,000.

You input this information into the tax return by answering key questions set out in Question 18 of the individual tax return^[8].

Can crypto tax software help?

There are online apps that can help do the heavy lifting of calculating your capital gains. They generally charge a fee, often based on the level of activity.

These are particularly useful if you transact often, or have a number of crypto wallets. But you will still need to double-check the results before relying on them to complete your tax return.

The calculators work by importing data from your digital wallet. Then, based on quantity, value, time of transaction and exchange rates, they will calculate your net capital gain for the year.

However, they may not account for things such as non-taxable disposals. You may need to add information manually – and it is your responsibility to ensure you are reporting to the tax office correctly.

Read more: 'I thought crypto exchanges were safe': the lesson in FTX's collapse^[9]

What if I don’t declare?

The tax office acknowledges the complex nature of crypto can lead to a genuine lack of awareness^[10] about tax obligations, and that crypto’s pseudonymous nature “may make it attractive to those seeking to avoid their taxation obligations”.

But don’t think you can get away with not declaring your gains. The tax office has ways to match data^[11] from sources such as digital exchanges to identify possible tax evasion.

In past years, it has warned hundreds of thousands^[12] of taxpayers about deficiencies in their lodged returns.

If you are found^[13] to have understated your tax liabilities, you will have to pay that debt, as well as interest and penalties.

If you need tax advice, see a registered tax agent^[14].

Disclaimer: The content of this article is for general information only. It is not intended as professional, legal or tax advice, for this you should consult a suitably qualified accountant or other professional. Any reliance you place on the information provided is at your own risk. The tax law and Australian Tax Office position is subject to both prospective and retrospective changes.

References

1. ^{^} 21% of Australian adults (www.aph.gov.au)
2. ^{^} net capital gain (www.ato.gov.au)
3. ^{^} Almost no one uses Bitcoin as currency, new data proves. It's actually more like gambling (theconversation.com)
4. ^{^} tax office’s (www.ato.gov.au)
5. ^{^} rules (www.ato.gov.au)
6. ^{^} its website (www.ato.gov.au)
7. ^{^} a 50% discount (www.ato.gov.au)
8. ^{^} individual tax return (www.ato.gov.au)
9. ^{^} 'I thought crypto exchanges were safe': the lesson in FTX's collapse (theconversation.com)
10. ^{^} a genuine lack of awareness (www.ato.gov.au)
11. ^{^} match data (www.ato.gov.au)
12. ^{^} hundreds of thousands (www.ato.gov.au)
13. ^{^} you are found (www.ato.gov.au)
14. ^{^} registered tax agent (www.tpb.gov.au)