Crypto spending in Australia is taxed every time! Did you know this? Using crypto to buy goods or services triggers capital gains tax.
But, don’t worry! We’re here to cover everything about how crypto spending taxes work and how to calculate your Australian crypto taxes every tax season! Let’s go!
KEY TAKEAWAYS about How Crypto Spending Is Taxed in Australia
- Crypto spending, meaning spending crypto to buy a product/service, is seen as a disposal in Australia unless it's for a personal use asset.
- Since crypto spending counts as a disposal, it is a taxable event in Australia, subject to crypto capital gains taxes.
- Investors need to calculate the gain/loss on each purchase they make with crypto, on top of the expense to buy that specific product/service.
- However, if the purchase qualifies as a personal use asset, capital gains tax does not apply.
- It is challenging to track the gain/loss on purchases like these, especially if you have a high volume of purchases due to the changes in price of the crypto assets used.
- CoinTracking is the easiest way to determine the gain/loss on each crypto purchase you make, calculating everything automatically while enabling crypto tax reports.
Is Buying with Crypto a Taxable Event in Australia?
Buying crypto with FIAT (e.g., AUD) is not a taxable event in Australia, but buying crypto with another cryptocurrency is taxable because it’s considered a crypto-to-crypto transaction.
If you use one cryptocurrency to buy another, you need to calculate capital gains taxes on that transaction by deducting your cost basis from the sales proceeds.
In Australia, if you hold that crypto for at least 12 months before selling it, only 50% of the gain in that trade will count towards your taxable income in Australia.
It is also important to note what your goal is when you buy crypto in Australia for tax purposes. Let’s look at it next.
All Crypto Investments at a Glance
What Is Personal Use of Crypto (According to the ATO)?
A cryptocurrency is considered a personal use asset if you buy and hold it for the purpose of personal use or consumption.
The main factor to determine the classification of your crypto is when you dispose of that asset and the way you store it also influences this decision.
However, you can buy crypto for one purpose (such as investment) and then change it to being a personal use asset, but this will probably lower the chance that it will be treated as a personal use asset. The main use of the asset at the time of the disposal is what defines how it’s classified.
Crypto Spending Under $10,000: When Spending May Be Tax-Free
In Australia, two conditions need to be met for a disposal to be exempt from crypto trading taxes, or in other words, tax-free:
- Asset to be classified as a personal use asset
- The crypto acquired is less than AUD 10,000
How to Track and Report Crypto Spending for Tax Purposes
You should keep a detailed record of your crypto transactions (5 years’ worth would be a good benchmark).
For personal use purposes, the ATO highlights the need to store the “evidence of your original intention at the time you acquired the crypto asset” and show how “you actually held or used the crypto asset from the time of acquisition up until the time you disposed of it.”
As a general rule, crypto users in Australia must keep detailed records of all crypto-related activities, including:
- Proof of purchase, sales, transfers, or any disposal of a cryptocurrency
- Date of each transaction
- Purpose of each transaction and the other party involved (e.g., wallet address)
- Statements from any exchanges you used
- Value of the cryptocurrency in AUD at the time of each transaction
- Documentation of any fees (e.g., accountants)
- Records of your digital wallets and their keys
- Evidence of any software expenses used for your crypto tax reporting
Crypto Spending Examples – Real-World Tax Scenarios
Let’s look at two scenarios where crypto is used to purchase a product or service and its different tax implications based on the nature of crypto in each transaction:
- Crypto as a personal use asset
- John bought 1 BTC at AUD 50K
- John thought about holding this BTC to get a return from it in the long term
- After 1 year, John decides to use part of his BTC to buy a used car worth AUD 20K
- When John buys the car, 1 BTC is worth AUD 100K
Is there any crypto spending tax for John to pay?
Yes, he bought Bitcoin as an investment, but halfway through holding it, he dedicated part of his portfolio to make a purchase. In this case, John will have to pay capital gains taxes on the 0.2 BTC (AUD 20K) he will sell to have the funds to purchase the car.
Here's the calculation of this capital gains in this case:
- Fund needed to buy the car: 0.2 BTC since 1 BTC is worth AUD 100K at that time
- Sales proceeds: The sale of Bitcoin to buy the car is AUD 20K (0.2 BTC * AUD 100K)
- Cost basis: 0.2 BTC was worth AUD 10K (0.2 BTC * 50K) when John first bought Bitcoin.
- Capital gains (sales proceeds - cost basis): AUD 10K (AUD 20K - AUD 10K)
Now, let’s look at a second example.
- John buys a pair of jeans with ETH
- John bought 1 ETH for AUD 2K to make purchases with it
- A week later, John wants to buy a pair of jeans for AUD 100
- John buys the jeans with 0.05 ETH (AUD 100/ AUD 2,000)
- When John buys the jeans 1 ETH is worth AUD 2,500, meaning, his holdings gained in value
Is there any tax to pay on the 0.05 ETH sold?
No, because crypto is a personal use asset in this case, since John bought ETH to purchase a personal item in a very short timeframe.
Your Tax Declaration – With one Click
Conclusion about spending Crypto in Australia
Taxes on spending crypto in Australia can be tricky as some transactions are subject to capital gains while others can be exempt from it.
The first step to evaluate your situation is to know if your crypto is a personal use asset or an investment and go from there to determine if you need to calculate crypto gains taxes or not.
As most people buy crypto as an investment, if you end up spending it to purchase something, you’ll likely have to pay capital gains taxes.
The easiest way to handle this is by using a crypto tax calculator like CoinTracking that automatically imports your crypto trades, calculates gains/losses, and generates tax reports.
Note: This article is for informational purposes only and does not constitute financial or tax advice. Always consult with a professional before making any decisions.
Frequently Asked Questions about Crypto Spending Taxes in Australia
Do I pay tax when I buy something with crypto?
If crypto is seen as an investment and you use it to purchase a product, you’ll be subject to capital gains taxes.
What is a personal use asset under ATO rules?
The ATO defines a personal use asset as something you use frequently to buy items for your consumption, which crypto can fall under.
Can I avoid CGT if I spend crypto right away?
Yes, you can avoid capital gains taxes on crypto spending if that crypto is classified as a personal use asset instead of an investment.
What records do I need to keep?
In Australia, you must keep detailed records of all of your crypto transactions, from dates of purchase/sale to gains/losses, wallet addresses, etc.
What happens if I use the same wallet for investing and spending?
What happens if I use the same wallet for investing and spending?
