Tax and the Normalisation of Cryptocurrency

In early November, the Commonwealth Bank announced that it is now Australia's first bank to offer customers the ability to buy, sell and hold crypto assets, directly through the CommBank app. You know when the banks come on board, cryptocurrency has become normal.

Let's look at what the Australian Taxation Office has to say about some of the commonly asked questions about the implications of investing in blockchain.

Is mining cryptocurrency income or an asset?

If you receive crypto from providing services to others, this can represent income. If you create crypto, you acquire a capital gains tax (CGT) asset. A taxing event will arise when you exchange crypto for Australian Dollars or another crypto asset.

Does the ATO really know about my crypto transactions?

The ATO is using various sources for data collection including digital service providers (DSPs) and analysis software to track taxpayer compliance. There are several data-mining projects underway looking specifically at cryptocurrency and cryptocurrency platforms.

What happens if my cryptocurrency is stolen?

You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen. You must be able to provide evidence of when you acquired and lost the private key, the wallet address, the cost of the cryptocurrency, and that the wallet was controlled by you.

How is my NFT artwork taxed?

As with any other cryptocurrency, an NFT can be held for personal use. Personal use assets are CGT assets that you keep mainly for your personal use or enjoyment. Capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.

Can my SMSF invest in cryptocurrency?

The issue is not so much can you acquire cryptocurrency within an SMSF but should you? The volatility of cryptocurrency makes it harder to rationalise under the sole purpose test, particularly if the asset allocation ratio is high. Before investing, check your trust deed, investment strategy, and ensure assets are held in a wallet in the name of the SMSF.