Yes, you must pay tax on your crypto if you hold it as an investment. In crypto investors' ideal world, taxes wouldn't apply to digital currency; however, as the federal government considers your crypto investments to be assets, they fall under the Capital Gains Tax (CGT) umbrella. Transactions such as disposal, exchange or swap are all considered by the ATO to be a CGT event: a fact that is often overlooked, according to senior tax manager at online tax return service, Etax.com.au, Liz Russell.
"I find a lot of people don't realise that exchanging one type of crypto for another, for example using Bitcoin to purchase Ethereum is also considered a capital event by the ATO," Russell says.
"So in this case, the price difference of Bitcoin when you bought it versus when you used it to buy Ethereum is treated the same way from a tax point of view as it would be if you sold the Bitcoin for Australian dollars."
As the Australian Government is yet to declare crypto an official currency or legal tender, it is currently categorised as an asset. This was reaffirmed in the recent Budget, in which the Albanese government noted that cryptocurrencies will not be regarded as a foreign currency for tax purposes, appearing to signal that Australia will not be following El Salvador in declaring Bitcoin to be legal tender.
Therefore, as you would with any asset, if you sell your crypto for a profit, you have made capital gains and are required to pay tax on this profit.
It is important to note that CGT is simply a title; any net gains your investment makes falls under the assessable income for your income tax. So what is the rate of the capital gains tax on your crypto? It is the same rate as your income tax rate.
However, there are some variations in the way that your tax is calculated, depending on whether you are classed as a trader or an investor. The details of these variations are slightly more nuanced and can be confusing for beginners.