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When are cryptocurrency gains tax-free in Australia (personal use)?

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.

In very limited circumstances cryptocurrency gains are tax-free.

If you acquired cryptocurrency as an investment or part of a business (e.g. mining/trading), then on disposal there are tax consequences. If the value of the thing you got in exchange for cryptocurrency is more than what you paid to originally get the cryptocurrency, then you have made a gain and this is taxable. But what if you didn’t own cryptocurrency for a profit-motive?

Well then maybe you are eligible for tax-free treatment. There is a little section in the Australian tax law called the “personal use exemption” and if this applies, then you pay no tax on cryptocurrency gains. However, people rarely satisfy the exemption. When can tax-free treatment apply?

Well all of the following criteria must be met:

  1. Your intention at the time of acquisition is for personal use (no profit-motive);
  2. Whilst holding the cryptocurrency it remains your intention to use it for personal use (no profit-motive);
  3. You dispose of the cryptocurrency for personal use; and
  4. The cryptocurrency cost $10,000 or less when acquired.

It is not a good idea to rely on this exemption without seeking tailored tax advice. It’s very difficult to meet the criteria because you need to show you had basically no intention of holding the cryptocurrency as an investment.

The ATO have said their default position when considering circumstances where a person has held cryptocurrency for a number of years will be to treat any gain as a taxable capital gain not eligible for the personal use exemption. As a result, if you cannot demonstrate actual personal use with evidence, then it will be difficult to convince the ATO that your cryptocurrency gains are tax-free.

We have come across situations where the personal use exemption does apply and those clients were provided with comprehensive tailored tax advice to verify eligibility. Not many of the people who ask us about the personal use exemption do qualify. For those that may qualify, they engage our specialist cryptocurrency tax accountants to extensively review their situation and where appropriate we provided a detailed report outlining why tax-free treatment applies. We’re extremely proud of our knowledge and experience regarding the personal use exemption and implore anyone who thinks they qualify to contact us to review their situation.

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