Crypto and Tax

We are now finding that the ATO is letting us know that our clients have crypto currency even before the clients come in for interview.

If you understand the principles of capital gains tax (CGT) you have gone a long way towards understanding the tax consequences of trading in cryptos. Crypto has currency in its name, but it is not a currency for CGT purposes. It is a CGT asset. Trading gains or losses must be reported in your income tax return just like most other capital assets.

We have a licence to prepare your crypto capital gains tax schedule in your tax return but I do not have a licence to advise you whether or not to invest in crypto. However, I can give you some facts. BHP is a well-known Australian company. If BHP makes profits, all the millions of shareholders benefit. Crypto is not like that. It does not make profits. It does not actually do anything. It is as active as a $50 bill sitting on the table.

Does this mean that you cannot make money by investing in crypto?  Of course not. The evidence is there for all to see. Huge fortunes have been made (and lost) by investing in cryptos.

I wish I had known about it in 2009.

You can make money, but only because some other investor is willing to pay more for your crypto than you paid for it. In fact, it is equivalent to a pyramid scheme or a Ponzi scheme as this is now more commonly known.

In addition, there are hackers and scammers and gamers who are taking their share of the cut, all of which reduces your chances of making profits.  If you are considering investing in crypto, please ignore social media and get the facts from reliable independent sources such as the Reserve Bank of Australia.