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A Guide To Dealing With Tax On Bitcoin & Cryptocurrency Profits

It’s all about keeping those crazy crypto profits in your pockets

Woohoo, free monies

Crypto madness and Bitcoin bonanza has firmly taken ahold of the internet. It’s much like the gold rush of the 1800’s. Those who moved first will be laughing all the way to the bank and the rest will probably be left holding dust when it all crashes.

One problem of the insane profits many traders are making is taxation. Once you decide you’ve had enough, what do you do with your handsome profits? Do you declare them to Mr.Taxman? Or do you hide everything in a Swiss bank account like a 1960’s bond villain?

Wild ideas aside, if you transfer $50,000 into your bank account tomorrow you’re going to get slapped at the maximum tax bracket, so you want to think this through.

We’ve spoke to accountants, crypto-gurus (if there is such a thing?) and friends of friends who know a bloke who once owned Bitcoin to understand the options further.

The good news is cryptocurrency is still kind of a grey area at the moment so you could be in luck… but this is unlikely to last forever.

RELATED: Cryptocurrency is the future of money

What Mr.Taxman says…

‘Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.’

The short of this is, if you’re making profit from Bitcoin, even though it’s not recognised as ‘money’ you still need to pay tax on any capital gains, much like selling shares or property.

Jump to the Australia Business website and they are singing the same song.

‘Bitcoin and other crypto-currencies aren’t considered to be money or foreign currency by the Australian Tax Office (ATO). Instead, they’re treated as assets for capital gains tax purposes, making them more like a barter arrangement.’

Regardless, any ‘barter’ transaction must be recorded as stated by the tax office below.

If you receive payment by Bitcoin, you’ll need to record:

  • the date of the transaction
  • the amount in Australian dollars (a reputable Bitcoin exchange can tell you this)
  • what the transaction was for
  • who the other person or business was (a Bitcoin address is enough)

Bitcoin payments made to you by customers will become part of your taxable income. You may also be charged GST when receiving Bitcoin in return for goods and services.

If you hold your crypto longer than 12 months…

Much like shares or property, if Bitcoin has been held as an investment by certain individuals and trusts for more than 12 months, a 50% CGT discount may apply to reduce the taxable gain. This same rule should apply to Altcoins, however you will need to provide proof of purchase of the original Bitcoin purchases used to acquire the Altcoins.

Your Bitcoin can be considered a ‘personal use asset’…

If you’ve bought Bitcoin to buy goods or services for personal use (i.e. lattes and wishing machines) and the original cost of purchase was under $10,000, any gain made will be tax free as it is a “personal use asset”. that’s good news!

Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.

The ATO provide more information on what classifies as an asset for CGT and what is exempt. In fact the ATO cryptocurrency guide is remarkably concise and simple, even for idiots like most crypto traders.

Using Bitcoin for barter of goods and services…

Let’s say you just made a cool $300,000 on Ripple (XRP) and you have had your eye on a new Porsche 911 GTS. You could look for a car dealer who is happy to let you buy the fancy new Porsche with your cryptocurrency.

Melbourne based car dealership Motorbiz is one business which is taking advantage of the trend. At the time of writing Motorbiz confirmed they have been receiving enquiries daily since announcing their acceptance of part or full payment for their vehicles using Bitcoin.

Small business owners can read up on how to accept Bitcoin as payment via the Wikipedia page. Better still see what the Australian government has to say about it.

The question then becomes how do you explain to the taxman how you acquired such a nice shiny new Porsche 911…

On the flip side you then look for companies which accept crypto as payment for services. Consulting? Training? Special massages? The options are limitless.

If you want to know all the businesses that accept Bitcoin payments then jump over here.

Load your coins onto a debit card with TenX…

Singapore based TenX is its own cryptocurrency but with a difference. They offer the ability to acquire a debit card (for $10) which allows you to load your Bitcoin, Etherium and other cryptos onto the TenX card.

You can then use your TenX debit card to pay for life’s little treasures…. fancy dinners, soy lattes, hell even a fancy new Rolex. TenX also offer a handy little app where you can track your account and load more Bitcoin on. Definitely a great concept and one worth investigating.

A word of warning with TenX – your profits are NOT converted into a cash currency, rather they stay in their cryptocurrency, so you’re at the mercy of the cryptocurrency market value. If the market tanks, you’re likely to lose your profits.

Also worth mentioning that VISA has shut off these types of payment in Europe.

“Many Bitcoin payment cards are operated using Visa provider WaveCrest, a Gibraltar-based company. WaveCrest reportedly emailed card holders informing them Visa had ordered it to close all pre-paid cards.” – Telegraph UK

Transfer your Bitcoin profit into Paypal…

If you’re likely to use your profits for online goods and services, then Paypal could be a good option.

The downside with Paypal are the fees both to transfer and to spend being rather hefty. A service like Unichange have a limit of $500 per transaction which is a pain in the ass. ExchangeMyCoins offers a similar service but it can take up to 3 days for the funds to hit your Paypal account.

Pay some bills…

Some clever bastard launched Living Room Of Satoshi. Arguably the least literal name ever, regardless you can pay all your bills via Bitcoin in Australian dollars. If you’ve been mining bitcoins all night this could be a perfect way to pay that electricity bill.

The art of business is being a good middleman

Living Room Of Satoshi is just that…

It’s was all a big gamble…

Let’s say you just took a big ol’ massive punt a year ago on a penny cryptocurrency. We technically this is a gamble and could be seen that way by the tax office. This is a long shot and you’ll most likely be audited but if you can prove you’re not a day trader and this was a punt, then it could be looking good for you.

And for the rest of you…

If you’re a big fish with hundreds of thousands in crypto profit you’re most likely going to want to speak to a good accountant as early as possible with all your easy earned profits. They’re going to be able to point you in the right direction before your profits get too cray.

Considering this Bitcoin bubble is money for jam, paying a cut to the taxman is no big deal. It just means you can buy your beachfront home in Bondi sooner without raising suspicious eyebrows.

Disclaimer – In no way are we endorsing dodging your tax duties as an Australian citizen, rather this is just a rough guide on what your rights are as a cryptotrader extraordinaire. 

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