Introduction
Cryptocurrency is becoming increasingly popular worldwide, and Australia is no exception. Alongside their rise, gifting and donating crypto have gained momentum. This dynamic shift in philanthropy and generosity brings unique tax implications, particularly in Australia.
The Australian Taxation Office (ATO) has established guidelines to regulate the taxation of crypto gifts and donations. In this article, we will explore the fundamentals of crypto gifts and donations and delve into the taxation aspects of these events, as per the ATO guidelines.
Whether you’re a crypto enthusiast or just beginning your journey in the digital currency world, understanding tax on crypto in Australia works and how these transactions are taxed is essential.
Understanding Crypto Gifting And Donations
Crypto gifting and donations in Australia involve transferring cryptocurrency without any monetary exchange. It can be between individuals, including friends, family, or charitable organisations. When gifting crypto, the good news is that the receiver isn’t subjected to taxation.
However, the recipient must record the crypto’s fair market value on the day of receipt. This establishes their cost basis, crucial for calculating potential gains or losses upon future disposal.
Donating crypto to a Deductible Gift Recipient (DGR), a registered charity, or an eligible organisation is non taxable for the donor.
Tax Liabilities On Crypto Gifting And Donations In Australia
Gifting and donating cryptocurrency in Australia can lead to specific tax liabilities that individuals and businesses need to understand. The Australian Taxation Office (ATO) treats crypto as property for tax purposes, meaning that gifting or donating crypto can trigger Capital Gains Tax (CGT). So here’s how different crypto gifting and donating events are taxed in Australia.
Tax On Giving Crypto Gifts
When giving a crypto gift in Australia, it’s important to understand the tax implications. The Australian Taxation Office (ATO) views gifting cryptocurrency as a disposal, which means you may be required to pay Capital Gains Tax (CGT) on any perceived profits. Whether you’re gifting for personal reasons or as part of a strategic move, the ATO treats it the same way. Be prepared to calculate and report any capital gains from the transaction to avoid penalties.
Receiving Crypto Gifts
Receiving crypto as a gift in Australia comes with tax advantages. You do not have to pay tax when you receive cryptocurrency as a gift, as it is not considered a taxable event. However, keeping a record of the fair market value of the crypto on the day you receive it is essential. This value will serve as your cost basis, which you will need for calculating any future capital gains or losses. If you later decide to sell or re-gift the crypto, your cost basis will help determine whether you make a profit or incur a loss, which may be subject to tax.
Selling Your Crypto Gifts
While receiving cryptocurrency as a gift is tax-free, the moment you dispose of it—whether by selling, swapping, spending, or re-gifting—it triggers a capital gains tax event. The ATO requires you to calculate the gain based on the fair market value of the cryptocurrency on the day you receive it. This value becomes your cost basis. When you eventually sell or exchange the crypto, you will need to report any profits as part of your taxable income, just like other capital gains.
Donating Crypto
Donating cryptocurrency is considered a Capital Gains Tax (CGT) event, similar to selling or trading crypto assets. You need to know the value of your cryptocurrency at the time of donation to calculate whether you made a capital gain or loss.
If you donate to a Deductible Gift Recipient (DGR), you won’t be taxed on any capital gains. You can also claim a tax deduction based on the dollar value of the donation. However, donations made under the Cultural Gifts Program or as part of a testamentary gift, don’t qualify for a tax deduction. Moreover, personally used crypto assets that have been donated are also exempted.
Keep detailed records of your transactions, including the date and value of the donation, to accurately report CGT. Ensure that the organisation you’re donating to accepts crypto and that the transfer of ownership is properly completed.
How To Calculate Tax Crypto Gifting In Australia?
The first step is understanding the tax liabilities on crypto gifting and donations in Australia. Now, let’s delve into the nitty-gritty of how to calculate these tax obligations accurately.
Calculating CGT On Gifting And Donation Tokens
- Determine the fair market value of the crypto asset at the time of the gift or donation.
- As a giver/donator, you also need to record the fair market value of the token gifted/donated when you bought it from an exchange or got it from someone else. This will be their cost basis for the asset and will be used to calculate any capital gains or losses when they dispose of the asset.
- You can then calculate the Profit or Loss on the gifting/donating transaction by the following formula:
Capital Gain/Loss = Disposal price – Cost basis
This will help you determine whether your gifted transaction was a profit or a loss. Thereby making you eligible for CGT if it is a gain or no tax if it is a loss.
Note: Donation to a DGR registered agency/organisation does not incur taxation under ATO.
Calculating CGT For A Receiver
If you, the recipient, sell the crypto asset later, they will be liable for capital gains tax on the difference between the asset’s fair market value at the time of the gift and the asset’s fair market value when they sell it. The capital gains tax rate will depend on the recipient’s income tax bracket.
Real Life Scenario
Example 1:
‘A’ gives his friend a Bitcoin worth AUD 5,000 as a birthday gift. ‘A’ had initially been purchased this Bitcoin for AUD 3,000.
For the giver, ‘A,’ this transaction triggers Capital Gains Tax (CGT). The taxable value is calculated as the difference between the current gift value (AUD 5,000) and the original purchase price (AUD 3,000), AUD 2,000. However, since the gain falls below the taxable threshold, ‘A’ has no tax liability.
For the receiver, there is no tax liability. However, it’s important to note the value of the gift received for record-keeping purposes. Gifts received generally do not incur tax liability for the recipient in many tax jurisdictions, including Australia.
Example 2:
In January 2023, John gave Sarah 1 Bitcoin (BTC) birthday gift. Back then, the price of 1 BTC was AUD 60,000. John had bought the Bitcoin for AUD 35,000.
Sarah chose to keep the Bitcoin for a while. In November 2023, the value of 1 Bitcoin went up to AUD 80,000, so she decided to sell it.
As the giver, John is subject to tax as if he had disposed of an asset. To calculate the tax:
a. Tax Liability Of The Giver:
Calculate the Capital Gain
Using the formula Capital Gain = Proceeds of Sale – Cost Basis (the value on the day of the gift becomes the sale price)
Capital Gain = AUD 80,000 – AUD 35,000 = AUD 45,000
Determine the Tax Liability
– The first AUD 18,200 is not taxed.
– On the remaining AUD 26,800 (AUD 45,000 – AUD 18,200), there is a 19% tax rate.
Tax Liability = (AUD 18,200 * 0%) + (AUD 26,800 * 19%) = AUD 5,092
So, John’s tax liability for this Bitcoin gift transaction would be = AUD5,092.
b. Tax Liability Of The Receiver:
Sarah decided to hold onto the Bitcoin, and in November 2023, its value increased to $80,000, prompting her to sell it.
To calculate her capital gain and tax liability:
Calculate the Capital Gain:
Capital Gain = Proceeds of Sale – Cost Basis
Capital Gain = AUD 80,000 – AUD 60,000 = AUD 20,000
Determine the Tax Liability:
– The first $18,200 is not subject to tax.
– On the remaining AUD 1,800 (AUD 20,000 – AUD 18,200), there is a 19% tax rate.
Tax Liability = (AUD 18,200 * 0%) + (AUD 1,800 * 19%) = AUD 342
So, Sarah’s tax liability for selling the Bitcoin in November 2023 would be AUD 342.
NOTE: If Sarah held the BTC for over 12 months, she could benefit from a 50% discount on the CGT.
Conclusion
Understanding the tax liabilities associated with donating and gifting crypto tax in Australia is crucial. Individuals and organisations can navigate these transactions effectively, ensuring compliance and minimising tax obligations by adhering to the ATO guidelines.
This knowledge empowers crypto enthusiasts to contribute to charitable causes or share their wealth with loved ones while staying on the right side of the law.
To further streamline this process and enhance compliance with Australian tax laws, consider leveraging the services of KoinX. Their automated crypto tax software simplifies portfolio tracking and ensures accurate reporting of crypto taxes to the ATO. Get started with KoinX today to experience the ease of confidently managing your crypto assets.
Frequently Asked Questions
Do You Have To Pay Tax On Selling Donated Crypto?
Yes, you may have to pay tax when selling donated crypto in Australia. When you sell or dispose of the donated crypto, it is considered a capital gains event. The amount of tax owed will depend on the value of the crypto at the time of donation and its value at the time of sale. You should report any gains or losses on your tax return to ensure compliance with ATO regulations.
Can ATO Track Crypto Gifts?
Yes, the Australian Taxation Office (ATO) can track crypto gifts. The ATO uses data-matching techniques, including information from exchanges and blockchain analysis, to monitor crypto transactions. Even if crypto is gifted, you must keep detailed records, including the market value at the time of gifting. This helps ensure you meet all reporting requirements and stay compliant with tax laws.
Can You Offset Crypto Gifts Losses With Capital Gains?
Yes, you can offset losses from gifted crypto against your capital gains in Australia. If the market value of the gifted crypto decreases and you eventually sell it at a loss, that loss can be used to offset capital gains from other investments. However, losses can only be offset against capital gains, not other forms of income. Always maintain accurate records for tax purposes.
Can You Claim Deductions On Crypto Gifting? /b>
In Australia, you generally cannot claim a tax deduction for gifting crypto to an individual. However, if you donate crypto to a registered charity or Deductible Gift Recipient (DGR), you may be able to claim a deduction equal to the fair market value of the crypto at the time of donation. Ensure the charity is DGR-eligible and keep all necessary records to support your claim.
