How Is Crypto Taxed? Australian Businesses

GST and fringe benefits tax when it comes to cryptocurrency could be rather complex.

And they’re primarily there and relevant for those who are operating businesses.

So when it comes to GST, essentially, we need to first look at, okay, are you registered the GST or do you have an obligation to register GST?

So the ordinary, ordinary rule is, is your turnover more than $75,000, of, of certain, certain suppliers.

They’re called sales, essentially, are called suppliers in GST world.

So when it comes to, say, if you’re trading cryptocurrency or selling cryptocurrency, in Australia, if you’re an Australian. The GST law was amended a few years back to say that those, those sales are input taxed sales in GST land, which essentially means those sales, you don’t have, you don’t have to pay GST on those sales. That’s great. And you also don’t have to take those sales into consideration for your registration turnover.

So if all you were doing was selling cryptocurrency in Australia to Australians, then you wouldn’t have to register for GST.

Difference would be if you’re selling cryptocurrency on an overseas exchange to a foreign resident. That sale is actually, rather than being input tax sale becomes a GST free sale. And GST free sales, in the name, don’t actually have to pay GST on them, but they do contribute to your registration requirements. So if you’re, you’re making more than $75,000 of sales, overseas in a business or an enterprise. So something, of a higher nature and just speculating on the value of assets. On spot trading, something more complex than that. And then you might need to register for GST.

So it just becomes sort of a compliance obligation, register for GST and lodge business activity statements. You don’t actually have to pay GST on the, on the, sale of your, your cryptocurrency. But you do still need to register for GST. Report, on a business activity statement.

Now because when sales of cryptocurrency are overseas and they’re GST free sales, you can actually claim GST on any expenses you have related to those.

It would be pretty rare, you’re not going to have too many expenses, most likely, where you can claim GST. If it’s an expense related to overseas that you bought from someone overseas, most likely they haven’t needed to include GST on that invoice. So it might be just something related to here in Australia. The number one thing I can think of would actually be your accounting invoice. So if you need it, if you were in a cryptocurrency trading business, for example, and all your trading was done on an overseas exchange and you were getting an accounting invoice from your accountant, such as us, we would have GST on that invoice. Okay. If that invoice related to doing your business activity statements, you could claim a GST back, through the system. But, as, as I mentioned, a lot of times, it’s not too much, too much GST to claim in relation to this.

If you’re doing a mixture of overseas trades and Australian trades, and you can claim GST, you can’t actually claim 100% of the credit anymore because some of it’s related to your Australian supplies, which are input tax credit, and you can’t, input tax supplies, sorry. And you can’t claim GST on those. So you would have to do an apportionment.

So if it was 20%, 80%, 80% overseas, 20% here in Australia, you can claim 80% of those GST credits.

So, as mentioned, liability to GST on crypto, on accepting it and selling it, is generally nil. Okay. Although, I suppose I better make, make sure I mention that, that doesn’t necessarily apply to all cryptocurrencies.

Because the GST law, it doesn’t refer to cryptocurrencies, it refers to digital currencies. Digital currencies have a specific definition, and that specific definition doesn’t cover all cryptocurrencies.

It was sort of originally intended, to apply to Bitcoin and other cryptocurrencies like Bitcoin, which were initially meant to be electronic cash systems. Electronic cash. So act like a, act like foreign currency, but they’re not foreign currency, they’re digital currency. So where cryptocurrencies are, I like that, they might, meant to sort of be replacements for, for money, for currency, then it’s GST free treatment.

But when cryptocurrencies are slightly different. A big one here I would say would be NFTs. Or, or some initial coin offering, you might actually need to be paying 10% GST on those sales. So something really important to consider, especially if you’re in business and you’re selling these assets. To look at the definitions of digital currency, look at your asset, asset that you’re selling, and go, okay, does this, does the asset you’re selling meet that definition of digital currency? If so, That’s okay. You’re not going to have a GST liability, but if not, then you very well may have to pay 10% of that sale proceeds, to the government as part of your GST liability.

So very important to be, aware of that, making sure that you’re receiving the appropriate tax advice and lodging appropriately, because otherwise, all of a sudden, that can be quite an unexpected GST liability that you could have.

And now we’re talking about fringe benefits tax.

Fringe benefits tax is where, where employers give something to their employees or associates of their employees, such as their spouse. That is, isn’t otherwise money ordinarily. So what that means is when you give cryptocurrency to your employees, so you might be paying your employees in cryptocurrency or part thereof in cryptocurrency or maybe giving a bonus, I’m not too sure. But if it’s some form of cryptocurrency, because cryptocurrency isn’t treated as Australian money, it’s treated as property, that would be a fringe benefit that you’re providing to your employees.

Fringe benefits tax is an obligation of the employer. So the employer then needs to look at their fringe benefits tax obligations and work out, okay, what do I need to report in my fringe benefits tax return?

Which is a slightly different tax period than the ordinary income tax period tax return. It ends at the end of March instead of the end of June.

And then you’ve gotta lodge that tax return. And the tax rate can be the top tax rate, 47%.

So the obligation isn’t then on your employees, it’s on you.

And you’ve got the obligation to not only pay that tax, not only lodge that fringe benefit tax return, but then also, most likely put, put this reporting on the, income statement for your employees so that they can report reportable fringe benefits on their tax return.

So a lot to consider there.

Not only as an employer, maybe as an employee, you might need to be considering this, especially if you’re getting paid from someone that’s paying you in cryptocurrency, we do see that happen. Sometimes that happens from overseas entities and, and they may otherwise be liable for some of this, or you might end up liable, depending on whether you’re an employee or a contractor, so you’d want to explore those. Those certain things and make sure you’re setting up a structure that’s going to be beneficial for yourself, beneficial for your, for your employer, or principal.

So I would say, you know, it’s an area where you definitely want to get, tailored advice and, you know, please reach out to Munro’s should you need that advice.