Trading cryptocurrency as a business in Australia has the potential to deliver some exciting benefits. It is a good idea to find out if you qualify as a crypto trading business.
If you are an Australian who trades cryptocurrency on a frequent basis, you might have considered the possibility of obtaining classification as a cryptocurrency trading business, however getting qualified as a business in the crypto trading world from the perspective of the tax office is no easy feat.
This article aims to discuss the various tax benefits that come with being classified as a crypto trading business, and the requirements you will need to meet to be defined as a business.
Do You Qualify as a Crypto Trading Business?
There are a number of requirements involved in operating as a cryptocurrency trading business. Simply operating with a high volume of trades is simply not enough because crypto traders seeking business classification must be operating in a business-like manner.
Unfortunately, the precise definition of what constitutes business-like activities under Australian Taxation Office (ATO) rules is difficult to pin down. If you meet most of the requirements on the following list, it’s possible that you may be operating a business of trading crypto:
- Significant capital investment in cryptocurrency trading
- Operating with a focus on short-term profit generation, as opposed to long-term investment
- High volume, regular, and repetitive transactions that follow a regular pattern on a daily or weekly basis, over an extended period of time in a manner consistent with strategic trading patterns
- Operating in a business-like manner: business registration, documented strategy, office space, professional analysis and research, business planning, consistent asset selection, and business-like record keeping
The Importance of Accurate Records
If you try to declare your business as a crypto trading business, it is extremely likely that the ATO will conduct an extensive review of your trading operations. The ATO is extremely strict in regards to the requirements necessary for business classification, so accurate record keeping is essential.
To support your case when subject to ATO review, you’ll need to keep records of the following:
- Trading records of all transactions
- Business registration documents
- A clearly defined trading strategy
- An extensive and accurate log of work time
- Detailed research complete with sources
- Business financial records
Do Crypto Traders Need an ABN?
It is essential for any business operating in Australia to have an active ABN number. Simply getting an active ABN set up doesn’t mean you are automatically defined as a crypto trading business, however — virtually any Australian can obtain a valid ABN by filling out the right forms.
If you are seeking classification as a crypto trading business, an ABN is essential.
Crypto Trading Business Benefits
The benefits delivered by classification as a crypto trading business are as follows:
- Small Business Tax Concessions: These concessions change on a yearly basis, but typically allow small business operators with an offset worth up to $1,000 & reduced tax rates.
- Loss Rules: Non-commercial loss provision forces traders with not activity to carry losses forward. Crypto trading businesses that generate over $20,000 of sales or trades in a financial year (not hard to do) but record an overall loss can often claim this as a loss against the rest of their taxable income, allowing operators to claim loss against salary.
- Trade Revenue Reporting: For crypto trading businesses, sells are considered trading income, while buys are considered trade purchases. Also considered in the calculation are opening balance and closing balance for the crypto held.
- Claiming Expenses: All business-related expenses and crypto-related expenses such as hardware, software, subscription, and office expenses can be claimed as a deduction – and can utilise the $30,000 small business asset write-off to claim immediate deductions.
Crypto Trading and GST
According to the ATO, the definition of “the sale of cryptocurrency” is “input taxed sales,” which are exempt from the $75,000 GST registration threshold. This means that even if a crypto trading business has made more than $75,000 worth of trades in a single year, it won’t have crossed the GST threshold.