Crypto: Have you considered the tax consequences?

Over recent months crypto has become more and more talked about; whether it’s Elon Musk tweeting and causing the price of Bitcoin to spike or crash by 25% (1), Mark Cuban accepting crypto for tickets to Dallas Mavericks games (1), or Tom Brady wanting to be paid part of his Buccaneers salary in crypto (2), it seems to be everywhere.

It is estimated that nearly 1 in 5 Australian adults now own some form of crypto (3), with the total value of their holdings adding up to $8 billion. This then begs the question: What are the tax consequences of dealing in Crypto?

The Right Structure

Prior to entering any new business venture or investment, weighing up the appropriate structure based on your personal circumstances is critical.

Ideally, determining whether to operate as a sole trader, through a trust or a company is done so prior to investing, however, if you are like most investors who have jumped into crypto, you have likely done so in your own name. Whilst this ‘structure’ may not be ideal, it certainly does not mean it is ‘set in stone’. We have recently assisted numerous individuals restructure their crypto and digital asset holdings into other more tax efficient structures whilst also incorporating asset protection strategies.

Tax Consequences

Over recent years, the number and type of transactions that can be undertaken in the crypto space has increased dramatically. Some transactions you might (or might not) be familiar with are:

• Crypto-to-crypto (selling one cryptocurrency to acquire another cryptocurrency)
• Mining
• Staking
• Airdrops
• Yield Farming through Decentralised Finance (DeFi) applications
• Crypto savings accounts
• Buying and selling NFTs
• Receiving crypto as a form of payment in your business.

Each of the above transactions can have different tax consequences and it is important you are aware of these, as the ATO is increasingly scrutinising taxpayers dealing in crypto.

If you would like to discuss setting up the right structure, restructuring existing crypto portfolios and other digital assets, or are wanting to understand the tax consequences of transactions you may already be conducting, please get in touch with us.