The follow-up portions of the question of bitcoin as a personal use asset were as follows:
- Does a taxpayer have to declare bitcoin if it was just for personal consumption?
- If the bitcoin they bought for such use cost more than $10,000, does this have to be declared and is it taxed?
- If so, at what rate is the bitcoin therefore taxed?
The ATO answers
Two ATO officers compiled the following pointers.
If your client buys and uses bitcoin solely to purchase goods and services for personal needs (such as clothing or music), the bitcoin will be a personal use asset.
Whether bitcoin is held solely for such purposes will always depend on a clients’ particular facts and circumstances. The relevant time for working out whether or not their bitcoin is a personal use asset is at the time of its disposal.
As your client’s tax practitioner, you’ll need to consider the purpose for which the bitcoin was acquired and kept, and what the bitcoin is used for. It does not just depend on the nature of the assets that were purchased (when disposing of the bitcoin) because how the bitcoin is kept or used is also relevant, and it may change over time. For example, bitcoin may originally be acquired for personal use and enjoyment, but ultimately be kept or used as an investment, to make a profit or as part of a business. In such cases, it will not be a personal use asset.
The basic rules are as follows:
- Bitcoin (or any cryptocurrency) that is kept or used to facilitate purchases or sales in the course of carrying on business is not a personal use asset.
- Bitcoin that is kept or used as an investment or to make a profit is not a personal use asset.
- Bitcoin that was acquired and is kept or used mainly to make purchases of items for personal use or consumption may be a personal use asset.
- The longer your client holds the bitcoin, the less likely it is that it will be a personal use asset.
Remember, if your client does make a capital gain from a cryptocurrency that is a personal use asset, the capital gain is only disregarded if the cost they incurred to acquire the bitcoin is $10,000 or less.
If capital gains tax does apply (that is, the cost incurred to acquire the bitcoin that is a personal use asset is more than $10,000), it isn’t treated as a separate tax — your client will be required to report any capital gain in their tax return, where it will be added to their assessable income and may increase the amount of tax they will be required to pay.
Because the tax isn’t withheld from salary and wages to cover capital gains, your client may want you to work out how much tax they may ultimately owe so they have a chance to set aside sufficient funds to cover the amount.
Special rules apply in calculating capital gains, and they will need to ensure they keep accurate records to help you complete their tax return. Be aware that all capital losses that are made on bitcoins that are personal use assets are disregarded. It does not matter what the cost was to acquire them.
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