Cryptocurrency is generally used to describe a digital asset and are a form of electronic money. They do not physically exist as coins or notes.
A cryptocurrency unit, such as a bitcoin or ether, is a digital token created from code using an encrypted string of data blocks, known as a blockchain. There are usually only a fixed number of digital currency tokens available.
Once created, these cryptocurrencies can then be bought and sold often by investors.
ATO take the view that Bitcoin and other cryptocurrencies with the same characteristics as Bitcoin are neither money nor Australian or foreign currency. Rather, they are property and an asset for capital gains tax (CGT) purposes.
As an investor you will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base.
If you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount.
If the capital proceeds from the disposal of the cryptocurrency are less than its cost base, you will make a capital loss. A capital loss can be used to reduce capital gains made in the same year or a later year. Net capital losses cannot be offset against other income.
In certain circumstances the trade of cryptocurrency will be deemed business income. Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income. Examples of businesses that involve cryptocurrency include:
- cryptocurrency traders
- cryptocurrency mining businesses
- cryptocurrency exchange businesses (including ATMs).
There are also limited circumstances where Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption.