The ATO treats cryptocurrency like shares and many other investments, so it is generally regarded as a capital gains tax (CGT) asset.
A CGT event occurs when disposing of cryptocurrency. Events can include selling cryptocurrency for a fiat currency, exchanging one cryptocurrency for another, gifting it, trading it or using it to pay for goods or services.
Most people hold cryptocurrency as an investment, which they hope grows in value over time to give them capital gains.
Each cryptocurrency is a separate asset for CGT purposes. When your client disposes of one cryptocurrency to acquire another, they are disposing of one CGT asset and acquiring another CGT asset. If your client holds cryptocurrency for 12 months or more, they may be entitled to a 50% CGT discount to reduce any capital gains made when they dispose of it.
The ATO says When people refer to themselves as a cryptocurrency trader, they are most probably an investor. If they are in business, the trading stock rules apply, rather than the CGT rules. If the disposal of cryptocurrency is part of their business, then:
• the cost of acquiring cryptocurrency held as trading stock is deductible but closing stock must be brought into account.
• profits made are assessable as ordinary income, not as a capital gain.
Some capital gains or losses from disposing cryptocurrency that is a personal use asset may be disregarded.
Cryptocurrency is not a personal use asset if it is kept or used mainly:
• as an investment
• in a profit-making scheme
• in the course of carrying on a business.
The relevant time for working out if an asset is a personal use asset is at the time of disposal.
The way a cryptocurrency is kept or used may change. For example, it may have been acquired
for personal use and enjoyment, but ultimately kept or used as an investment to make a profit on
when disposed or as part of carrying on a business.
The longer it is held, the less likely it will be a personal use asset – even if your client ultimately use it for personal use or consumption.
Only capital gains made from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses made on personal use assets are disregarded.