The ATO knows about your business using crypto. Be aware of your tax obligations

According to a representative Savvy survey, 17.3% of 1000 polled Australians already own cryptocurrency, with 36% intending to buy into crypto in the future. 

If your business is considering taking crypto as payment to reach these Australians, it’s best to get on top of your tax obligations early — unless you want to run afoul of the Australian Taxation Office (ATO).

Though cryptocurrency transactions are in theory “untraceable”, ongoing integration of crypto into the financial system — such as exchanges now offering bank transfers including PayID/Osko transactions — means they fall under the regulation of APRA and ASIC. 

If people in your business have handed over personal information in order to open a crypto wallet on an exchange that trades in Australia, the ATO knows about it.

According to the BTC Markets Investor Study (financial year 2020-21) there was a 175% increase in the number of trades in bitcoin, with a 31% year on year volume growth. Furthermore, there was a 136% growth in crypto investments from companies in the same period, meaning cryptocurrency is becoming well established in business practice. 

If your business trades in bitcoin, you need to be aware of your tax obligations.

The five cryptocurrency situations businesses may find themselves in

1. Cryptocurrency businesses, e.g., traders

2. Businesses that use crypto to make business transactions

3. Isolated profit-making businesses or commercial transactions

4. Paying salary or wages using crypto

5. Providing receipts for services provided

Crypto businesses

These businesses are set up to exclusively deal in crypto, either as miners, traders, or forgers. In this scenario, cryptocurrency transactions are taxed according to the trading stock rules, and not the capital gains tax rules.

Crypto businesses may use the simplified trading stock rules, as laid out by the ATO here.

Using crypto to make transactions

If your primary business is not trading or mining but using crypto to make or take payments, you will need to account for cryptocurrency as you would for other assets or items used in your business. 

If you receive crypto as payment for goods or services, this is recorded as ordinary income and you will need to provide the value of the crypto in Australian dollars to the ATO as part of your activity statements or regular reporting.

“This is the same process as receiving any other non-cash consideration under a barter transaction,” according to the ATO, 

Investing in crypto

If your business invests in crypto for the express purpose of making a profit, it will be treated as a capital gains event.

If your business uses ATO via MyGov, you can make a detailed calculation on CGT.

The first step is finding your pre-tax cost-basis for acquisition of your crypto. If your business bought $10,000 in crypto and paid a $100 brokerage fee, the cost-basis equals $10,100.

If your business had to dispose of the crypto but made a $5000 profit and paid a $50 brokerage fee for the conversion back into fiat currency, your cost basis would now equal $10,100 + $50 = $10,150, which means your total gains are $4850.

Your business may also be eligible for capital gains concessions, such as the 50% active asset reduction if you’ve held the crypto for more than 12 months. In the above example, the taxable portion would reduce to $2425. 

Paying employees with crypto

If you are a business that employs people and you wish to pay your workers with crypto instead of Australian dollars as part of a salary sacrifice arrangement, any crypto paid will attract Fringe Benefits Tax.

If there is no salary sacrifice agreement, the crypto paid to your employees will be subject to your usual Pay As You Go (PAYG) obligations in the Australian dollar equivalent.

The taxation and financial information presented here is general in nature. Consult a tax or financial professional for advice on tax obligations and financial product investments.