What do you think of when you read the following: Ethereum, Stellar Lumen, Monero, Ripple and Cardano. You might think that these are luxury car names or maybe even fashion designers. To the uninitiated, these are types of cryptocurrency. It is a world that is completely foreign to most, but to some is proving to be a lucrative, yet highly volatile investment for those in the know. News cycles are full of stories about how cryptocurrencies are reaching record highs one month then hitting record lows the next.

This article isn’t about whether cryptocurrency is good investment. It’s about what you need to be aware of when the excitement of investing in crypto becomes a tax problem. If I’m honest, the ATO has historically been slow in providing guidance around the treatment of crypto. I mean, how do you keep records for something that doesn’t exist? Let alone the question of how you tax something that doesn’t exist?

From a tax perspective, the most important thing to remember is that when you dispose of crypto, a capital gain tax (CGT) event occurs. This occurs also if you trade one currency for another. If the currency can’t be valued, the ATO will use a market valuation at that date. As it constitutes a CGT event, holding the currency longer than 12 months will give rise to a discount on the gain of 50%. Mostly importantly, there is a CGT event each time a disposal is made. You can imagine the time that will need to be spent when lodging your tax return.

Record keeping is the biggest issue I see when dealing with crypto transactions. You need to ensure you have evidence of the date of transactions, the value of the currency in Australian dollars at the time of the transaction and what the transaction was for and who the other party was (even if it’s just their cryptocurrency address). Records include receipts, exchange records, digital wallet records and keys. Unfortunately, the ATO won’t accept excuses when records aren’t properly kept. Also remember that the ATO has sophisticated data-matching programs so if you have disposed of crypto during the year, the ATO will know and non disclosure will result in further questions.

So if your suffering from FOMO (fear of missing out for us older readers) and need to invest in the next big thing, please remember these tips to ensure that there aren’t any surprises when tax time rolls around. Finally, if you’re unsure, please seek the appropriate financial advice before making any decisions.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.