If you buy and sell cryptocurrency on a regular basis with the goal of making a profit, then the profit on disposal of the cryptocurrency will not be subject to CGT. Instead, it will be assessable income as you will be regarded as a ‘trader’ rather than an ‘investor’.

In effect, you’ll be regarded as being in business as a buyer/seller of cryptocurrency. It can be a fine line between being an investor and a trader. Broadly speaking, if you are turning over your cryptocurrency every few days chasing profits, you have many transactions and you are running a business-like structure (for example, with a business plan, accounts and records of trading stock, business premises, licences or qualifications, a registered business name and an Australian business number) you are considered a trader. If you are holding the cryptocurrency with the goal of long-term gain, you are likely to be an investor.

The rules regarding trading cryptocurrency for business or profit (versus buying/selling it as an investment) are essentially the same as those applying to share traders versus investors.

Australian Businesses Using Bitcoin to Buy and Sell Goods and Services

If you are a business owner who has received cryptocurrency for your goods or services, you will need to record the value of the cryptocurrency units in Australian dollars as a requirement when reporting your ordinary income for tax purposes.

When your business purchases items (including trading stock) with cryptocurrency you are entitled to a tax deduction based on the arm’s length value of any item you acquire.

The disposal of cryptocurrency may have may also have capital gains tax consequences if you are running a business. However, it is important to know that any capital gain is reduced by the amount included in assessable income as ordinary income (so you aren’t taxed twice on the same amount). 

Examples of businesses that involve cryptocurrency include;

  • cryptocurrency trading businesses
  • cryptocurrency mining businesses
  • cryptocurrency exchange businesses (including ATMs).

Not all people acquiring and disposing of cryptocurrency will be carrying on businesses. To be carrying on business, you will usually:

  • carry on your activity for commercial reasons and in a commercially viable way
  • undertake activities in a business-like manner – this would typically include preparing a business plan and acquiring capital assets or inventory in line with the business plan
  • prepare accounting records and market a business name or product
  • intend to make a profit or genuinely believe you will make a profit, even if you are unlikely to do so in the short term.

There is also usually repetition and regularity to your business activities, although one-off transactions can amount to a business in some cases.

Whether you are carrying on a business and when the business commences are important pieces of information. If you’re still setting up or preparing to go into business, you might not yet have started the business.

Money received (or property received) prior to a business being carried on is not generally assessable income. Likewise, you can’t claim deductions incurred prior to the business being carried on.

Mining Cryptocurrency as A Business

If your business is mining cryptocurrency, any income resulting from the transfer of the mined digital currency to someone else is included in assessable income. Any expenses which occur as a result of the mining activity are allowed as a deduction. 

Any losses resulting from the mining of cryptocurrency might also be subject to the non-commercial loss provisions, this means they won’t automatically be available to offset against other income (there are tests you will have to meet first).

The non-commercial loss provisions exist to prevent individuals or businesses from using up losses from activities which they never realistically had a chance of making a profit or which don’t arise from genuine business activities. For example; people who are trading as a hobby or are engaging in speculation which is basically a form of gambling.

If you are carrying on a business of mining with the intention to sell the currency, it is a form of trading stoke. You will therefore need to bring into account any currency on hand at the end of each income year. 

Taxpayers Conducting A Cryptocurrency Exchange (Including ATM’s)

If you are running a business that aims to buy and sell cryptocurrency as an exchange service, the proceeds consequent from the sale of the currency are included in assessable income. 

Any expenses accumulated as a of the exchange service, including the acquisition of the cryptocurrency for sale, are tax deductible. 

Disposing Of Cryptocurrency Acquired For Investment

When acquiring cryptocurrency as an investment, CGT will apply, however when the cost of the cryptocurrency does not exceed $10,000 the personal use asset exemption may apply if you can prove that the cryptocurrency was to fund personal consumption. 

The ATO pays extra attention to taxpayers who try to rely on the personal use asset exemption to avoid CGT; prepare to be asked to provide evidence that you either did – or intended to – use your cryptocurrency to fund personal spending on services and goods. 

When the price of the cryptocurrency surpasses $10,000, the personal use exemption will not be available and CGT will apply. The capital gain is calculated as the increase in value of the cryptocurrency between the time it was acquired and the time it was disposed of. 

If the transactions result in profit-making undertaking or plan then the profits on disposal of the cryptocurrency will be assessable income since you will be viewed as a trader instead of an investor. 

The rules around trading cryptocurrency for business or profit in comparison to buying and selling cryptocurrency as an investment are pretty much the same as those applying to share traders versus investors. There are number of things to take into consideration but generally speaking, if you are holding the cryptocurrency with a goal to long term gain, you are most likely to be an investor. If you are buying and selling cryptocurrency over the short term with a view to making profits, you are likely to be perceived as a trader.