The tax implications of crypto trading are not yet well understood. Every time you sell or swap one cryptocurrency for another, a capital gain event is likely to have occurred, and knowing how to record your crypto transactions can be a challenge.

Depending on your level of crypto trading calculating the capital gain or loss made on each sale can be a timely process. This is due to a number of factors such as –

• The total number of crypto transactions made during the financial year – for some it’s hundreds or thousands.
• The dates and amounts for both the original purchase and sale are required.
• At times you might only dispose part of your holding at a time, requiring an apportionment of the original cost to be applied to the sale.
• At times you may also be swapping one coin directly for another coin, each swap is considered as a buy & sell transaction.
• You may also be purchasing a number of coins at once as part of a bundle purchase.

Most platforms used to trade cryptocurrencies (such as Coin Spot, Coinbase & Swyftx) provide you with a year end trading report, however generally these reports just give you a transaction listing for each buy and sell made using that platform. They don’t actually calculate the capital gain or capital loss made on each transaction for that financial year. Asking your accountant to manually work through the year end report generated by your trading platform is a timely process and will result in a significantly higher fee for the time taken to prepare your income tax return.

Fortunately there are now some third party software providers that can assist if you are happy to upload or link your trading data. We do not endorse any particular provider but have provided some sites that we’ve seen clients using to date:

• https://koinly.io/
• https://cryptotaxcalculator.io/au/
• https://bear.tax/pricing.html

It’s important that you do your own research before you subscribe to a particular service as there are different packages and options – such as allowing direct access to your trading platform to automatically obtain future transactions.

Also be mindful that it’s fairly new territory and the software might not be perfect. It’s always your responsibility to review the report to ensure that it is accurate and reflects your trading activity. We haven’t noticed any major issues so far, although we’re aware there may be reporting inaccuracies where clients have transferred the coins from one wallet to another and not necessarily sold them.

The subscription cost to these platform will be tax deductible so please remember to keep a copy of your invoice.

Other related blogs:

Tax treatment of crypto trading
Buying Bitcoin will I pay tax?

Author: Rhys Frewin
Email: rhys@faj.com.au

With a market value of more than $2 trillion US dollars it is no wonder investors, share traders and even your friends are swarming to the digital gold rush that is crypto trading. However it is important to understand the implications that holding and trading cryptocurrencies such as Bitcoin and Ethereum may have on your annual tax return.

The term cryptocurrency is used to describe a digital asset that cannot be easily created through the use of encryption techniques and verification from multiple networks (called the block chain) to ensure the validity of the asset. As a result of these techniques, cryptocurrencies operate independently from the central bank and government.

There are three different ways the ATO will treat cryptocurrency depending on how and why you are holding it.

The first and most common is the treatment when held by an investor. For most people (investors) your cryptocurrency will be held on a capital account meaning you will not have to pay tax when you purchase a cryptocurrency or if there is a change in market value while you are holding it. However when you do decide to sell or dispose of your cryptocurrency you may have to pay capital gains tax (CGT). Even if you sell a currency and immediately buy another, this is still considered a sale for CGT purposes. An advantage of holding crypto on capital account is that if you hold it as an investment for more than 12 months you may be entitled to a 50% CGT discount (which means you’ll only pay tax on half of the gain).

The second (and less common) approach is when cryptocurrency is deemed to be trading stock. This is where the holder is classified as a share/crypto trader (someone who undertakes business activities for the purpose of earning income from buying and selling shares and/or crypto) and is held instead on revenue account. Proceeds from the sale of cryptocurrency instead are deemed ordinary income and the cost of acquiring cryptocurrency a deductible business expense. An advantage of holding cryptocurrency as a trader is that your losses from the sale of crypto can sometimes be offset as a deduction against your other sources of income whereas losses from the sale of crypto on capital account can only be used to offset other capital gains.

It is important to understand that you can’t choose between these two methods. You are taxed as either a trader or an investor based on the facts. To determine if you are a trader, the ATO looks at the following factors:

• What is the nature and purpose of your activities, is the intention to make a profit and is there a business plan in place?
• How repetitive, regular and voluminous are your activities? The higher the volume the more likely a business is being carried on. A business would be regularly and routinely trading cryptocurrency.
• Are your activities organised in a business-like way? This primarily relates to the record keeping of share/crypto transactions. Does the share/crypto trader produce annual reports and have qualifications, expertise or training in the market.
• How much capital is invested? The size of holdings compared to personal capital may be taken into account when determining if someone is a share trader or simply an investor. However this is not a critical factor as it is possible to carry on a business with very little capital.

The third way is when cryptocurrency is classified as a personal use asset, whereby capital gains or losses that arise from the disposal of these assets may be disregarded. Cryptocurrency is considered a personal asset only when it is kept and used primarily to purchase items for personal use only.

Other related blogs:

Buying Bitcoin will I pay tax?

Author: Rhys Frewin
Email: rhys@faj.com.au

Many businesses breathed a collective sigh of relief when the Instant Asset Write Off (IAWO) Scheme was first introduced, due to changing market conditions at the height of the COVID-19 pandemic. The scheme, which has now been extended to 30 June 2023, allows eligible entities to claim an immediate deduction for many depreciable assets, rather than expensing them over their effective lives.

The new rules have been designed to offer temporary tax relief while encouraging businesses to bring forward investments that they may have been looking to make over coming years.

There are some items that need to be considered before utilising these measures, as it may not necessarily be the most tax effective approach in the long run. These are:

• Cash flow should be reviewed, as investing in an asset sooner than predicted could lessen the funds available for the day to day running of the business now and in future years.
• Marginal tax rates should be considered. A deduction may result in taxable income dropping into a lower tax bracket. This means that you may not be able to take full advantage of the deduction and it may be less tax effective than traditional depreciation methods.
• Claiming an immediate deduction will also decrease taxable income to an unusually low rate. This in turn may artificially decrease PAYG instalments the following year, resulting in a larger than usual tax bill.
• Businesses are advised to look at the long-term effect that IAWO may have on taxable income in comparison to spreading the deduction over the effective life of an asset. If your business is in a break even position, or operating at a loss, there is no real benefit to claiming the deduction out right.
• When an asset, such as a car, is fully expensed when purchased, it must be remembered that the proceeds on sale need to be declared in full if this asset is sold. This could result in a higher than usual tax bill.
• If the simplified depreciation rules are used by a Company, and a tax loss results, this loss cannot be distributed to shareholders.
• If the business is operated by a Trust and goes into a loss position, franking credits on any dividends received will not be able to be utilised.

As always, it is important to consult your Accountant when deciding which approach to take and they will be able to assist you to opt out, should you wish to.

Related Blogs

$150,000 Instant asset write off – do I have to use it?
Company carry back losses – what are the rules?

Author: Joanne Humphreys
Email: joanne@faj.com.au

A re-contribution strategy involves withdrawing a lump sum from your super fund, paying any necessary tax on the withdrawal and re-contributing these funds back into super as a non-concessional (after-tax) contribution.

The revised superannuation balance will potentially consist of all, or more, tax-free component, which may ultimately reduce the tax payable when funds are withdrawn my a member or paid to beneficiaries upon death.

This opportunity may best arise between ages 60-65 when members can draw superannuation out without incurring tax, and still have the ability to meet the contribution rules.

To determine the validity of a re-contribution strategy, it is important to understand if your superannuation benefits are categorised as tax-free and/or taxable components.

1. Tax-free components

The tax-free component of your super balance is generally the contributions on which you have already paid tax, so you don’t pay tax on them again when they are withdrawn. Tax-free components include your non-concessional (after-tax) contributions.

2. Taxable components

The taxable components of your super balance are generally your concessional (pre-tax) contributions such as super guarantee (employer contributions) and salary sacrifice contributions.

Ultimately, you want your super balance to have a high tax-free component and a lower taxable components to reduce the potential tax payable when your super is paid out of your super fund upon a condition of release being met.

Disadvantages of a re-contribution strategy

• This strategy may cause your assessable and taxable income to increase for a particular financial year. A higher assessable income and taxable income may lead you to pay more tax.
• You also may be liable to pay tax on the lump sum withdrawal from superannuation if you are aged below 60.
• When re-contributing, any amount that is in excess of the non-concessional cap will incur a penalty tax. The non-concessional (after-tax) contribution cap is $100,000 in 2020-21 or $300,000 if you are eligible to use a bring-forward arrangement.
• Withdrawing a lump sum and re-contributing into your super account could affect both your total super balance (TSB) and transfer balance cap. As at 30 June 2021, your TSB needs to be under $1.6 million to make a non-concessional contribution.

Related blogs:

What happens if I make excess contributions to super?
How can you access your super?

Author: Jesper Lim
Email: jesper@faj.com.au

Understanding the tax consequences of buying a work vehicle can be complex and confusing.

The general concept is that if you buy a motor vehicle for work related travel, you are able to claim the work portion of the expenses incurred as a deduction, however under current temporary tax measures there are some circumstances where you can claim the cost of the vehicle.

How you claim a deduction for these expenses depends on many factors, such as if you are an employee or sole trader, what type of vehicle you purchase and if there is any private use of the vehicle. See below for a discussion on the factors which determine what method will be most tax effective for your situation.

Cents per kilometre vs logbook method

If you are an employee or a sole trader, you can either claim your car expenses using the cents per kilometre method or the log book method.

Under the cents per kilometre method, you can claim up to 5,000 kilometres of work related travel at a rate prescribed annually by the ATO. For 2021, this works out to a maximum deduction of $3,400. This method requires the least amount of administration as you do not require written receipts to substantiate your claim, but you do need reasonable evidence that you actually traveled the kilometres for work purposes.

The other method to claim car expenses is known as the logbook method. To claim under this method, you need to keep a logbook for 12 continuous weeks detailing all your work related travel to give you a log book percentage. If the logbook states your travel is 70% work related for example, then you can claim 70% of all your vehicle expenses, including depreciation of the vehicle and financing costs. The logbook is valid for 5 years, unless your circumstances change.

One key difference between these methods is that you cannot claim anything for the capital cost of your car under the cents per kilometre method. This is because the prescribed ATO rate already takes the car depreciation into account. On the other hand, the logbook method allows you to claim a depreciation deduction for the work-related portion of the cost of the vehicle.

Further, if you are a sole trader and use the small business concessions, you are currently eligible to claim the work-related portion of the full cost of the car in the year of purchase. The flip side to this is you will also need to declare the proceeds on the eventual sale of the vehicle as assessable income, which is taxed at your marginal tax rate in the year of sale.

Car vs Ute or Van

If your vehicle isn’t considered to be a car for tax purposes, you cannot claim using the cents per kilometre method. Rather, you must claim the portion of your vehicle expenses that relate to work use. A vehicle is not considered to be a car if it has carrying capacity of one tonne or more, or if it is able to carry nine passengers or more (for example, some utes and vans). The ATO states you do not need to keep a logbook to determine the work related use percentage for these vehicles, but it is recommended. It is important to note that not all utes and vans satisfy these conditions, so it is important to confirm the carrying capacity for your vehicle.

Car Cost Limit

If you are claiming car expenses under the logbook method, you can claim the work related portion of the cost of your vehicle up to the car cost limit. This is the maximum value you can use to calculate your depreciation claim. The car cost limit changes yearly – for 2021 it is $59,136 (GST inclusive). As an example, if you are a sole trader registered for GST and purchased a car in the 2021 year for $80,000, the most you can claim is 10/11ths of the car cost limit as a depreciation deduction, which is $53,760. You are also entitled to claim back $5,376 as a GST credit.

Related blogs:

Claiming vehicle expenses using a logbook
New guidelines for FBT exempt motor vehicles

Email: tessa@faj.com.au