Tax consequences for using cryptocurrency for business transactions
If you are carrying on a business that is not a cryptocurrency business, but use cryptocurrency in your activities you need to account for cryptocurrency as you would for other assets or items used in your business.
If you receive cryptocurrency for goods or services you provide as part of your business, you need to include the value of the cryptocurrency in Australian dollars as part of your ordinary income. This is the same process as receiving any other non-cash consideration under a barter transaction.
Basically, you are receiving something else in exchange for physical money however it needs to be converted back to be calculated for tax and GST purposes.
The extent to which the consideration received or receivable during a barter or countertrade transaction (either in terms of cash, credit units, goods or services) represents assessable income under subsection 25(1) depends upon the nature of the consideration in the hands of the recipient. The essential principle when dealing with barter or countertrade transactions is that these transactions are assessable and deductible only to the same extent as a similar cash or credit transaction.
One way of determining the value in Australian dollars is the fair market value which can be obtained from a reputable cryptocurrency exchange. The key fundamental of this system is to relate the real-world value back to Australian dollars for correct tax treatment.
Where you purchase business items using cryptocurrency (including trading stock) you are entitled to a deduction based on the market value of the item acquired.
The current treatment of cryptocurrency in exchange for goods and services is covered under; Income tax: barter and countertrade transactions- IT 2668. This identifies that cryptocurrencies are remuneration and should be treated as such for tax purposes.
Are monies received for payment of goods and services sold within Australia paid with cryptocurrency assessable income?
Yes, monies received are counted as assessable income and are related back to the Au dollar for tax treatment.
Do I need to pay GST for receiving payment in cryptocurrencies for goods and services sold within Australia?
Yes, the GST treatment is 1/11th of the total amount.
Can I claim a GST credit for a payment of goods and services made in relation to my business?
Yes, you can claim these as normal deductions.
If I make a gain or loss from funds received is this a CGT event?
Depending on the duration of the time the asset is held will depend on if the business will class the gain as a capital gains tax event or income similar to foreign exchange losses or gains. Depending on your structure of business will depend on if a CGT discount will apply for the asset being held greater than 12 months. Kept in mind the CGT event is only trigger when the asset is sold or exchanged for another cryptocurrency.
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This article is written by Kieran Powell who is a registered tax agent and avid crypto enthusiast.