Do you know how your Bitcoin will be taxed?

Bitcoin has enjoyed a meteoric rise and could be in for a similarly spectacular fall.Either way, trading in Bitcoin has tax consequences. And staying out of trouble with the Australian Tax Office means knowing whether you are a hobbyist or serious investor, advisers say.

As far as the ATO is concerned, there are broadly two reasons for purchasing Bitcoin: personal consumption and speculative gain.

How you are taxed will depend on which category you fall into and, most importantly, how the ATO will view your activity.

Above all, every single transaction needs to be fully documented, including not only “what”‘ is purchased, but “why” it was purchased, Hall & Wilcox partner Anthony Bradica said.

“If your intention in purchasing Bitcoin is to use it to buy goods or services for personal consumption, then any profit from resale will be assessable as a capital gain,” he said.

That is, any appreciation in the value of the capital will be taxable at marginal rates. The 50 per cent capital gains tax discount may also apply if the Bitcoin is held for at least 12 months, which means only half of the gain is taxed.

But there is a helpful exception. If the original cost of the Bitcoin purchase was under $10,000, any gain made will be tax free because it is considered to be a “personal use asset”.

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Source: Do you know how your Bitcoin will be taxed? | afr.com