For tax purposes, it is very important to know what category your cryptocurrency activity falls within. There are currently four categories that can potentially apply to you.
- Consumer/Hobbyist (non-taxable personal use asset)
- Investor (taxable – capital account)
- Trader (taxable – revenue account)
- Mixture of the above (both capital and revenue account)
To assist you with your tax obligations, we have outlined some key characteristics of these four categories.
What is a consumer/hobbyist?
Ostensibly, a consumer or hobbyist in the cryptocurrency world is a taxpayer who has acquired cryptocurrencies for non-investment related or business like activities. The intention or purpose of the taxpayer in entering into the transaction was not to make profit or gain.
An example of this would be a bride and groom who were provided bitcoin as a wedding present and they shortly after sold those bitcoin. The taxpayers had no intent on crypto investing nor trading and were merely realising a capital asset. Therefore this event would more than likely be deemed to be a non-taxable event.
What is an investor?
The tax office’s view of an investor is: “the goals of an investor is to gradually build wealth over an extended period or time through buying and holding of a portfolio of investments, seeking larger returns.”
What is a trader?
The Tax Office’s view of a trader is one who frequently buys and sells investment instruments taking advantage of both rising and falling markets to enter/exit positions over a shorter timeframe. Whether or not a taxpayer is carrying on a business of trading will always be determined on the basis of the facts, however typical factors will include:
- The volume and repetition of transactions
- The application of significant capital outlay
- A discernible profit intent
- The professionalism the taxpayer displays in carrying out the activities undertaken including planning, strategies, record keeping etc.
What is a mixture of trader and investor?
A taxpayer may be characterised as an investor for some particular crypto/s and as a trader for other crypto/s held.
So, even if they are carrying out a bona fide business of trading in relation to most of the crypto portfolio, if they have been treating one or more crypto as a long-term investment (no trading, no routine research and monitoring, no frequent records of market movements) then the expectation from the Tax Office should be that this crypto should be taxed as an investment asset when sold.
Understanding your obligations to the ATO can be challenging. If you require further advice or assistance, feel free to contact our team.
