Cryptocurrency and the Personal Asset Use Exemption
We all know that we cannot fully trust all that we see and read in the internet and this holds true for the trove of information regarding crypto tax treatment in Australia. One of the most prevailing crypto tax advice myths we read is that trades and purchases below $10,000 is tax exempt as it is falls under the personal asset exemption rule of the ATO.
What Is Personal Use Asset?
The term "personal use asset" is very important in relation to cryptocurrency. As the title implies, it is an asset that you acquire for personal use and not an asset that you acquire knowing that you will make a profit or a loss. Items like a flat screen TV, Iphone X or a Macbook Pro would all be considered as personal use assets. The purchase and sale of such items can be excluded from your taxable income as provided by the ATO. Such a determination is crucial, as it will allow you to exclude your cryptocurrencies and tokens when calculating your taxable income.
The ATO defines personal use "if it is acquired and kept or used mainly to purchase items for personal use or consumption". It further states that, "where you use cryptocurrency to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less."
This is where the confusion comes in. A lot of people are assuming that if you made crypto purchases of less than $10,000 then it is automatically exempt from taxation. However, this is not the case. The easiest way to explain this is to use an analogy.
An Australian man decided to travel across South East Asia for a holiday so he exchanged $10,000 AUD to USD at the airport. He was not able to use all his money so upon return to Australia, he converted his USD back to AUD. However, during his vacation the value of the USD has significantly risen, so much so, that he made a profit during the exchange. The profit he made is tax exempt as he bought the USD for personal use.
Another Australian man decided to exchange $10,000 AUD to USD because he read that the US Central Bank would be increasing their interest rates soon. After a month, he exchanged his USD to AUD and made a profit. This is a taxable event as the exchange was made with an expectation of a profit.
Pattern of Behaviour
Another important factor that the ATO would consider is the pattern of your behaviour in your cryptocurrency transactions.
A pattern of transactions over time across various exchanges and currencies would suggest that you are purchasing cryptocurrency not for personal use but rather as an investor or a trader.
Therefore, even if your transactions do not go above the $10,000 threshold but your pattern of behaviour suggests that you have been actively trading, and then you will have difficulty claiming that such purchases are for personal use.
To summarize, the ATO would consider purchases to be of personal use if:
1. The original purchase price is less than $10,000. This could also include purchases up to $10,000.
2. Purchases are made with no expectation of any profit or loss and are for personal consumption
3. There is no pattern to suggest that you are using cryptocurrency as an investment or are actively trading
Please ensure you are receiving the best advice, please contact one of our experienced crypto tax accountants.
The material published electronically in this article is general in nature and does not constitute financial advice. We do not guarantee that the information is complete or correct. We do not accept any responsibility for loss or damage suffered by any person or body relying directly or indirectly on any information contained within this site.
We do not accept any liability for any financial decisions made on the basis of the information provided. We recommend you seek professional advice, and take into account your particular investment objectives, financial situation and individual needs before proceeding with any financial decisions.
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