How to Avoid Crypto Taxes in Australia
Posted On June 22, 2022
Let’s get one thing clear. You can’t entirely avoid crypto taxes in Australia. BUT… you can be strategic about your taxes and pay less.
Strategies to avoid crypto taxes in Australia include investing in ETF and SMSF, donating to charity, using available tax breaks to your advantage and finally, how can we forget about the good-old tax-loss harvesting.
In this article, we’ll dive deep into all the ways you can reduce or avoid paying your crypto taxes. But before we do that, let’s quickly recap how crypto taxes in Australia work.
How Crypto is Taxed in Australia?
Australia has different tax treatments for individual investors and traders.
If you don’t know, Individual investors are people who invest in crypto, or any asset for that matter, to build wealth over a long period of time. In the crypto space, we call it HODLing.
Traders, however, are more interested in earning less but more consistent and frequent gains on a daily, weekly, or even monthly basis.
In Australia, you pay capital gains taxes if you’re an individual investor making a profit from crypto. But if you qualify as a trader or business, you’ll be liable to ordinary income taxes.
In our guide to crypto taxes in Australia, we pick it apart in much more detail, including how the ATO decides whether you’re an individual investor or trader.
Nonetheless, this is how crypto taxation in Australia works in a nutshell.
Before we move on to the crypto tax-saving strategies, remember that the Australian financial year closes on the 30th of June.
Why do you need to know that?
Well, in order for some of these strategies to work, you have to implement them before the financial year ends.
1. Invest in Crypto a ETF or SMSF
An ETF is similar to a mutual fund but is traded on the stock market. A crypto ETF is the same as a normal ETF, but instead of stocks or assets, it deals with digital tokens.
Investing in a crypto ETF is great for various reasons but mainly because of its tax benefits.
Usually, you invest in a crypto ETF through an ETF company. After that, the company handles your tokens. They decide when to sell and buy, making you profits.
But before distributing that profits in the form of dividends or franking credits, the company pays income taxes on the investors’ behalf. So, you only get the after-tax profits.
Crypto ETFs are a great way to invest in the growing cryptocurrency economy without worrying about paying taxes.
Now, let’s talk about SMSF.
SMSF is a pretty complicated investment tool that demands its own guide. But to quickly give you an idea, SMSF are self-managed super funds that you and a maximum of five other members carefully pick and manage.
Earnings and contributions in an SMSF are taxed at a discount tax rate of 15% and 10% for long-term gains, given that your funds obey the super legislation. Additionally, when a member crosses the age of 60, they are exempted from all taxes on income received from that fund.
Both ETFs and SMSFs are great investment tools on their own, but their tax benefits make them a no-brainer.
2. Utilize the Personal Use Asset Option
Personal use assets are crypto that you buy for personal consumption or use. The ATO exempts gains realized while using a personal use asset to buy a product or service. But only if the asset’s value is less than $10,000.
All of this is too simplified. Let’s look at the following example to get a real understanding of how this works –
Sam wants to buy a blockchain-based game on the internet, but the vendor only accepts Ethereum as payment. So, to buy the game, Sam purchases the equal value of Ethereum as the game’s price and makes the payment.
In this scenario, the Ethereum Sam bought is a personal use asset and will be exempted from all taxes.
To qualify for this option, you must prove that you’re using crypto as a personal use asset, and timing is key here. The longer you hold your crypto before buying a product or service, the more unlikely it is to qualify as a personal use asset.
Nonetheless, the burden of providing evidence falls on the taxpayer.
3. Donate Crypto to a Qualified Charity
Although gifting crypto is not tax-free in Australia, donating to a deductible gift recipient (DGR) is. Generally, deductible gift recipients include charities and NGOs recognized by the ATO.
You can deduct the fair market value of the crypto you donate from your total taxable income, but only if you donate to a DGR.
This is a great way to avoid crypto taxes in Australia while at the same time doing something good for others and the community.
4. Hold Crypto for More than 12 Months
In Australia, you get a 50% discount on your capital gains taxes if you hold your crypto for more than 12 months.
While this strategy may not allow you to avoid crypto taxes in Australia entirely, it does save you a huge chunk of it. It’s especially great for HODLers.
For traders, though, this strategy is pretty much useless. However, if you’re not a trader, consider holding onto your crypto for more than a year.
5. Tax-Loss Harvesting
Tax-loss harvesting is one of the best tax-saving strategies used by many.
Tax-loss harvesting is the process of selling your crypto assets, or any asset for that matter, that are already sitting at a loss to realize a loss, which you can then use to offset other gains.
Simple and straightforward. Check out our guide to crypto tax loss harvesting to know more about this.
Some people go one step further and buy back the asset right after selling it. This is called the wash sale. Some countries, including Australia, have unique laws and guidelines preventing people from exploiting this loophole.
However, only harvesting loss is a perfectly legal and fair way of minimizing your tax liabilities. It’s something that thousands of taxpayers do every year.
6. Consult a Tax Professional
Taxation in itself is a very complex subject. Introduce crypto to it, and it becomes a lot more complicated. That’s why sometimes, the best way to avoid crypto taxes in Australia is just to hire a tax professional.
A tax professional can help you find the best ways to avoid taxes according to your unique situation. It may be a bit more expensive than some of the other ways we discussed today, but if you are a high-worth individual with multiple income sources, it’s well worth it.
No matter what you do, make sure you report and pay your taxes because the ATO will find out one way or another if you don’t pay your taxes.
Bitcoin.Tax can help you with that. It automatically collects all your transactions, calculates your taxes using your preferred accounting method, and creates a tax report for you while you can sit back and relax.