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What are Australian tax issues for receiving cryptocurrency as part of a salary?

The content in this article is provided for general information purposes and is not tax, legal, investment or other professional advice. Readers should seek appropriate professional advice prior to making any decision.

Some Australians have begun to receive cryptocurrency as part of their salary. This is relatively common for those who have found employment in the blockchain industry. In this article, we discuss some of the associated tax issues.

Salary income paid to an Australian is usually taxed before payment to the employee in accordance with PAYG withholding obligations imposed on the employer. Alternatively, the employer may be subject to fringe benefits tax. When cryptocurrency is paid by the employer to the employee, the employer may or may not be required to withhold tax and the employee may or may not have to declare it as income. There are varying factors at play and each situation needs to be examined to determine the appropriate tax treatment.

There are some Australians working for overseas-based employers. In some circumstances, an employee may effectively receive a tax-free salary. It is common for overseas-based employers to want to mitigate their exposure to the Australian taxation system. To achieve this, the employment relationship needs to be structured in a tax effective manner and usually shifts tax compliance obligations onto the employee. It is best to arrange this prior to the commencement of employment.

By receiving cryptocurrency as payment of salary, employees should consider their entitlement to employer superannuation contributions. Ordinarily, employers are obligated to pay 9.5% of an employee’s salary to the employee’s superannuation fund account. However, arranging payment of salary in cryptocurrency instead of dollars may inadvertently reduce the employee’s effective salary package by way of reducing legally mandated superannuation contributions. Alternatively, superannuation contributions may instead be “reportable superannuation contributions” which can affect income tested benefits and obligations.

After receiving cryptocurrency for payment of salary, the subsequent tax implications arising from the disposal of the cryptocurrency depends on what it is used for. For example, if the cryptocurrency is held for long-term investing, then on later disposal, gains and losses are subject to capital gains tax. In such a case, specialist cryptocurrency tax advice should be considered to make sure this is done in a tax effective structure.

If you’re in a position where you are receiving cryptocurrency as part of your salary, we suggest you contact us so you understand the tax consequences and have a tax effective strategy in place.

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