Cryptocurrencies are often traded on digital exchanges, called marketplaces. They are used as currency on the internet, such as those bought for investment or those used within a blockchain platform (such as Ethereum), and do not incur taxation.
However, various government entities may tax cryptocurrencies traded like stocks and bonds (also known as “security tokens”). Traders can use tools like the Swyftx tax calculator to know more about the tax per transaction.
Capital Gains on Cryptocurrency in Australia
Cryptocurrencies are considered assets, and as a result, any realised gain or loss on the sale of a cryptocurrency is subject to capital gains tax (CGT).
If you hold a cryptocurrency for more than 12 months, it is considered a long-term capital gain, and the tax rate is only 10%. If you hold a cryptocurrency for less than 12 months, it’s considered a short-term capital gain, and the tax rate is standard as per your income bracket.
Income from Cryptocurrencies
Any income generated from trading or distributing cryptocurrency is taxed as ordinary income. If the cryptocurrency is a capital gains asset, it’s taxed at half of your regular income tax rate.
In some cases, bitcoin mining (the process of generating new bitcoins) may be classified as a hobby and incur taxation similar to that on shares.
How to Calculate Cryptocurrency Tax
The easiest way to calculate your cryptocurrency tax is using a tax calculator like the Swyftx tax calculator that has been made specifically for this purpose. An online crypto tax calculator can easily be found with an internet search.
If you choose to calculate your tax manually, you will need to know the following information:
- The amount of cryptocurrency you purchased
- The date of purchase
- The price you paid for the cryptocurrency on that day
- The date of sale/exchange
- The amount of cryptocurrency sold/exchanged
- The cost base of the cryptocurrency (this is how much you paid for it plus any costs associated with acquiring it, such as transfer fees)
- The capital gain or loss made on the sale (calculated as the difference between the sale price and cost base)
Both capital gains and the income derived from cryptocurrencies are subject to CGT discounting. CGT discounting allows 50% of these assets to be exempt from tax, providing the asset has been held for more than 12 months.
How Does an Online Tax Calculator Work?
An online tax calculator is used to make the tedious task of calculating your cryptocurrency tax as simple and easy as possible. These calculators work by generating a report that lists all your gains and losses across all coin purchases, trades, and payments for goods or services.
You must provide an accurate estimate of the amount of money you have invested in crypto. If you have kept good trading records of your trades, there should be a slight difference between what you’ve told the calculator and what’s actually in your portfolio.
If the information provided is not accurate, this may result in a miscalculation of taxes owed. You can classify the process by which the online tax calculator works into three steps:
1. Enter Your Details
When you first access these calculators, the initial step is entering your details, such as age and income level. This allows for calculating your tax bracket so that the calculator can distribute your tax liability according to how much you earn per year.
2. Input Existing Holdings and Gains
The next step is inputting your existing holdings and gains. You can find this information on holdings in several places, such as exchange records, trade histories, or an Excel spreadsheet.
3. Calculate Tax
After completing the first two steps, the calculator will automatically calculate your tax liability for the current financial year. This information is presented in an easy-to-read and understand report.
Cryptocurrency tax is a complex and often tedious process, but using an online tax calculator can simplify it. These calculators work by generating a report that lists all your gains and losses across all coin purchases, trades, and payments for goods or services.