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How to Calculate Capital Gains Tax on Crypto and When Does It Apply

Cryptocurrencies are touted as next-generation trading assets. Due to their decentralisation and volatile nature, traders actively invest in them in pursuit of quick profits. A free crypto tax calculator will allow you to estimate the potential earnings from the trade.

If you’re trading from Australia, you must take into account the taxation for cryptocurrencies. More specifically, calculate and eventually pay the capital gain tax. In this article, learn more about the capital gains tax on crypto and when it applies.

What is Capital Gains Tax in Australia?

Capital Gains Tax (CGT) is the tax collected on the income of your capital assets. When you sell a capital asset, the profit you make off of it is taxed. Even when there’s a loss, i.e., you sold the asset at a lower price than what it cost you to acquire it, you’d have to report the same to the Australian tax authorities.

Australia has CGT on a wide range of things. In general, since September 20, 1985, any asset you own is subject to CGT unless it has been expressly excluded.

The Capital Gains are calculated based on the value of your crypto assets when you enter into a contract for disposal, not when actually dispose of them. So if by the time you sold the asset, you made a loss, but you were you in profit when entering into a contract for disposal, then it’ll still be considered as a profit.

Capital Gains Tax on Cryptocurrencies

In Australia, cryptocurrencies are viewed as assets. So by definition, they do attract Capital Gains Tax. The Australian Tax Office (ATO) announced that it would start tracking the cryptocurrency transactions within the country and impose taxes accordingly.

Back in 2019, it had announced that it would be sharing data with all Australian cryptocurrency-designated service providers. So it will have all the transaction data going as far back as 2014.

If you’ve been trading cryptocurrencies like Bitcoin as an individual, your tax rate will be the same as your income rate.

Individual investors can also get a 50% discount on the tax if they’ve been holding the currency for at least 12 months.

The tax rate on cryptocurrencies will be treated the same as income tax. So, refer to the income tax slab in Australia, which you can get here.

If your taxable income was below $18,200 for that financial year, then you do not have to pay any taxes. Conversely, if your income was above 180,001, you’ll be subjected to a 45% tax rate.

How to Calculate Capital Gains Tax?

To start with, you need to determine whether you’re an investor or a trader.

An investor buys cryptocurrencies and then holds them for years. In this case, the profits are derived from long-term capital gains. Hence, those will be taxed as per the CGT guidelines.

If you’re a cryptocurrency trader, it will be treated as your assessable income or business income and not investment profit. The term trader refers to someone who buys and sells assets within a short period of time.

After you’ve decided whether you’re an investor or trader, you need to gather more information. These are the following:

  • Purchase price (or cost basis) – The amount in AUD you paid to buy a cryptocurrency.
  • Sold price – The amount in AUD you disposed of the asset for.
  • Taxable income – It includes the total taxable income for that calendar year. This will determine the tax rate that’d be applicable in your case.
  • Holding period – The period you held the crypto assets for. If it’s more than 12 months, you will be eligible for a 50% CGT discount.

A free crypto tax calculator can use the above information to calculate the total profit you made and tell you how much tax you will have to pay on your earnings from the crypto market.

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