Tax time targets
If you dispose of an asset — property, shares, crypto or NFTs, collectables (costing $500 or more) — you will need to calculate the capital gain or loss and record this in your tax return.
Capital gains tax (CGT) does not apply to personal use assets such as a boat if you bought it for less than $10,000.
Crypto and capital gains tax
A question that often comes up is when do I pay tax on cryptocurrency?
If you acquire the cryptocurrency to make a private purchase and you don’t hold onto it, the crypto might qualify as a personal use asset. But in most cases, that is not the case and people acquire crypto as an investment, even if they do sometimes use it to buy things.
Generally, a CGT event occurs when disposing of cryptocurrency. This can include selling cryptocurrency for a fiat currency (e.g., $AUD), exchanging one cryptocurrency for another, gifting it, trading it, or using it to pay for goods or services.
Each cryptocurrency is a separate asset for CGT purposes. When you dispose of one cryptocurrency to acquire another, you are disposing of one CGT asset and acquiring another CGT asset. This triggers a taxing event.
Transferring cryptocurrency from one wallet to another is not a CGT disposal if you maintain ownership of the coin.
Record keeping is extremely important – you need receipts and details of the type of coin, purchase price, date and time of transactions in Australian dollars, records for any exchanges, digital wallet and keys, and what has been paid in commissions or brokerage fees, and records of tax agent, accountant and legal costs. The ATO regularly runs data matching projects, and has access to the data from many crypto platforms and banks.
If you make a loss on cryptocurrency, you can generally only claim the loss as a deduction if you are in the business of trading.
Gifting an asset might still incur tax
Donating or gifting an asset does not avoid capital gains tax. If you receive nothing or less than the market value of the asset, the market value substitution rules might come into play. The market value substitution rule can treat you as having received the market value of the asset you donated or gifted for the purpose of your CGT calculations.
For example, if Mum & Dad buy a block of land and then eventually gift the block of land to their daughter, the ATO will look at the value of the land at the point they gifted it. If the market value of the land is higher than the amount that Mum & Dad paid for it, then this would normally trigger a capital gains tax liability. It does not matter that Mum & Dad did not receive any money for the land.
Donations of cryptocurrency might also trigger capital gains tax. If you donate cryptocurrency to a charity, you are likely to be assessed on the market value of the crypto at the point you donated it. You can only claim a tax deduction for the donation if the charity is a deductible gift recipient and the charity is set up to accept cryptocurrency.
The ATO has flagged four priority areas this tax season where people are making mistakes.
With tax season upon us the Australian Taxation Office (ATO) has revealed its four areas of focus this tax season.
Record-keeping
Work-related expenses
Rental property income and deductions, and
Capital gains from crypto assets, property, and shares.
In general, there are three ‘golden rules’ when claiming tax deductions:
You must have spent the money and not been reimbursed.
If the expense is for a mix of work-related (income producing) and private use, you can only claim the portion that relates to how you earn your income.
You need to have a record to prove it.