The Australia Tax Office (ATO) will view the large majority of people who are engaged with cryptocurrency as investors. However, if you are currently running an explicitly crypto-oriented business, for example; a mining farm, or are operating as a trader rather than an investor, then the rules you are required to follow are different.
What Is The Definition of a Trader?
Figuring out if someone is a trader is more difficult to determine than what one might first think. appear. Simple quantity of trades is not enough to render you a trader in the eyes of the ATO because you must also be operating in a “business-like manner”. Although there is no absolute definition of what constitutes business-like activity, some of the things to look for are:
- Significant capital investment.
- A focus on short-term profit generation, as opposed to long-term investment.
- High volume, repetitive and regular transactions which take place on a daily or weekly basis.
- Buying and selling behaviour that suggests an active trading strategy.
- Actually, operating in a business-like manner for example; business registration, strategy documents, office space, business planning, budgeting, consistent asset selection and business-like record keeping.
If you qualify for the majority of all those requirements or all of the above, then it is most likely that you’re operating as a cryptocurrency trader. If you are unsure about whether you’re acting as a trader or not, we strongly suggest you secure the services of a crypto tax specialist to help work it out.
Can A Person Be Both a Trader and An Investor?
The short answer is yes. However, if you wish to hold both trading and investing accounts, it is super important to make sure that they exist in separate wallets and experience a minimum of cross-contamination for example they don’t keep sending coins back and forth between them.
This also means it’s possible to be a cryptocurrency trader and a stock market investor and vice versa.
What Does It Mean to Be A Cryptocurrency Trader?
In simple terms, if you are operating as a cryptocurrency trader this means that you will be taxed as a sole trader. Instead of assessing each trade as a capital gains event, sells are seen as trading income, while buys are considered trade purchases. So, much like a regular business, it’s all about income and expenses.
At the end of each financial year, you will tally your income and your expenses including the difference between the value of your portfolio at the beginning and end of the year and the profits will be added to your overall taxable income. It is important to note however that if you make a loss, you may be able to deduct that from your other income for the year.
You also need to keep in mind that if you are running an official cryptocurrency business which means that you have registered yourself as a company with ASIC for the purposes of trading, mining or any other crypto-related activity you will be required to pay the Australian company tax rate of 27.5 percent instead.
However, keep in mind this rate only applies to profits the company has made. Any money you pay out as wages to either yourself or your employees will be deducted from the company’s profits and will be taxed as personal income instead.
Registering For An ABN and GST
If you are classified as a crypto trader, you will be required to register for a sole trader ABN. However, you will only need to register for GST if your annual GST turnover (income before expenses) is over $75,000.
Cryptocurrency trades are considered to be input-tax sales, this means that they are sales of goods and services that don’t include GST. You are unable to claim GST credits for your ‘inputs’ and your cryptocurrency trading turnover doesn’t contribute towards your annual GST turnover.
Although you can’t claim GST on your trading, you might be able to claim certain business purchases what are commonly referred to as reduced credit acquisitions. You can also claim 75 percent of any GST paid on brokerage fees. GST compliance can get pretty complex so unless your GST turnover is above $75,000 per year (in which case you don’t have a choice in the matter), you’ll have to decide whether it’s worth the extra time and effort.
Cryptocurrency Mining as A Business
If you have been making income from mining cryptocurrency, then you will first need to figure out whether you’re running a business or just mining as a hobby. Much like with trading itself, the rules can be difficult to navigate however, generally speaking if you’re conducting business-like activity – for example; registering a company, creating business plans, pursuing an active profit model, conducting the same activity in a regular, planned fashion then the ATO is most likely going to view it as a business.
In regard to mining, this means that all mined cryptocurrency must be reported as income in Australian dollars at the time that it has been mined. Any income you make from selling or trading the crypto must also be reported. At the end of the year, any stock you have on hand will be measured against the stock you had at the beginning of the year and added to the total.
As a business you will be eligible to claim expenses such as hardware depreciation, software and electricity costs. You might also be able to claim the small business instant asset write-off, which allows you to claim up to $30,000 of equipment or infrastructure costs as a deduction. Furthermore, you may be able to claim any losses against your regular income, subject to the rules for non-commercial losses.