Crypto Investments – are you getting the right advice?


Cryptocurrency has been around for some time now. After an initial period of skepticism it is growing in popularity as an investment. And, like all investments in Australia, it is subject to tax laws. So, are you getting the right advice?

By JIm Vass

 

Crypto and the ATO


The Cryptocurrency market is fairly unregulated, and it can be volatile. While it’s not for everyone, it is gaining popularity. Once upon a time it was considered to be beyond the regulators – beyond banks, beyond the governments, and completely decentralised. And to a large degree it still is. 

But be warned – it’s not beyond the watchful eyes of the Australian Tax Office. 

It’s important to know and understand this, whether you’re making gains or losses, because either way these can have implications for your tax. 

While most of us refer to Cryptocurrency as ‘Crypto’, for ATO purposes it is described as a digital currency, and defined as

Digital currency is a digital unit of value that has all of the following characteristics:

  • fully interchangeable with another unit of the same digital currency for the purpose of its use as payment
  • can be provided as payment for any types of purchases
  • generally available to the public free of any substantial restrictions
  • not denominated in any country’s currency
  • the value is not derived from or dependent on anything else
  • does not give an entitlement or privileges to receive something else.

The ATO lists some examples of digital currencies such as: Bitcoin, Ethereum, Litecoin, Dash, Monero, ZCash, Ripple, YbCoin.

 

Rules around GST in relation to cryptocurrency changed in 2017. Other things you need to be aware of include Capital Gains Tax, which may be incurred when you dispose of your cryptocurrency, either by sale or gift, trade or exchange, or if you use crypto to buy goods or services. 

 

There can also be implications if you make a loss – depending on the circumstances. 

Tax implications


Without going into all of the ins and outs of the various tax rules that apply, you also need to be aware that each different cryptocurrency is treated as a separate asset. 

There are different tax treatments around whether the Crypto is a personal asset or a business asset, and also whether it is an investment made by an SMSF. 

With all of this in mind, you can see that as with many other Australian tax laws, it can get pretty complicated. 

So, what’s the answer? Get professional tax and accounting advice. 

Crypto is, as has often been said, the way of the future. And certainly the Covid pandemic sped up the digital revolution substantially.

It also inspired many people to look to non-traditional investments. That’s all good and well. But if you don’t have the right structures in place for these investments you’re not able to take advantage of any tax savings that may be applicable, at the same time as ensuring you meet all your tax obligations.

Just getting curious? Do your research before jumping in.


If you’re just getting curious about Crypto, be sure to do your research. 

Don’t fall prey to FOMO either – take your time, don’t rush in. There are certainly as many success stories as there are tales of loss. And there are plenty of people out there, particularly on social media, who purport to be experts, but aren’t really.

Just be sensible – get information from a reputable person or company, and get advice tailored for your personal circumstances. Certainly don’t go-it-alone armed with some broad brush instructions you found on YouTube or Instagram. Yes, professional advice costs, but it’s worth it in the long run.  

If we were to offer one single piece of guidance, it would be to start small, and don’t put all your eggs in the same basket, don’t risk the family farm, or the kids’ inheritance etc etc etc.  

Diversification is an age-old, time-tested risk mitigation investment strategy. It means creating an investment portfolio that includes investments across a number of different asset classes and industries.  

Diversification has not only helped people to build their wealth, but to protect it to some degree when the markets are unstable and unpredictable, which does happen from time to time, for a range of reasons.

Also remember that ‘Rome wasn’t built in a day’. Similarly, building real and sustainable wealth takes time too. 

If we can help, then please, give us a call.