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
Tax Liabilities on Gifting Cryptos
In Australia, gifting and donating crypto assets come with distinct tax implications. When you gift a crypto token, you dispose of it, subjecting it to Capital Gains Tax (CGT), a taxable event.
There are no immediate tax liabilities if you’re on the receiving end of a crypto gift. However, you may become liable for capital gains tax when you eventually sell, trade, or swap the gifted crypto, provided you’ve made a profit. Conversely, if you incur a loss, it should be reported as a capital loss.
Tax Liabilities on Donating Cryptos
Donating crypto assets is also considered a CGT event, much like any other disposal of an asset. This means you need to know the value of your crypto assets at the time of donation to determine whether you’ve made a capital gain or loss.
Generally, there is no tax on capital gains when donating crypto assets to DGRs, except in cases of testamentary gifts or those made under the Cultural Gifts Program.
The tax deduction for the donated amount (calculated based on the dollar price of the crypto at the time of donation) can be claimed as the deduction on your tax return if you donate it to an agency registered under DGR. However, you cannot claim a deduction if a donation is made under the Cultural Gifts Program.
Personally used crypto assets that have been donated are also exempt. Keeping meticulous records of your crypto asset transactions, including the date of donation and their market value, is essential for accurately reporting CGT.
However, organisations accepting crypto donations should ensure they can receive such assets and that ownership is transferred correctly.
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
‘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.
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.
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.