Transacting with cryptocurrency

With interest in cryptocurrencies (such as Bitcoin) increasing, the ATO has issued guidance regarding various tax consequences of transactions involving cryptocurrencies.

Any capital gains made on the disposal of a cryptocurrency (including using the cryptocurrency or converting it to Australian dollars) may be taxed, although certain capital gains or losses from disposing of a cryptocurrency that is a ‘personal use asset’ are disregarded.

Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption (but the longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset).

Note: If the cryptocurrency is held as an investment, the taxpayer will not be entitled to the personal use asset exemption but, if they hold the cryptocurrency as an investment for 12 months or more, they may be entitled to the CGT discount.

If the disposal is part of a business the taxpayer carries on, the profits made on disposal will be assessable as ordinary income and not as a capital gain.

The ATO has also provided guidance regarding the tax consequences of the loss or theft of cryptocurrency, as well as of ‘chain splits’.