Cryptocurrency is viewed as a ‘personal use asset’ by the ATO if it is held for personal use. The ATO may exempt capital gains made from cryptocurrency valued up to $10,000 if it is considered a personal use asset. The ATO will consider factors such as the time between acquisition and use, how it is used, and the purpose of the holding when determining whether the cryptocurrency is a personal use asset.

Generally, the longer you hold your cryptocurrency, the less likely it is to be deemed a personal use asset. Cryptocurrency is classified as a personal use asset if it is predominantly used to buy items for personal consumption. Conversely, if it is mainly used as an investment, in a profit-making scheme, or in the course of running a business, it would not be considered a personal use asset.

It is best to consult with your advisor to determine if any of your crypto activity falls into this category. For example, if you had held 1 Bitcoin for 2 years, with occasional purchases of goods using Bitcoin, the primary purpose of your Bitcoin holding would be considered an investment rather than a personal use asset. Alternatively, if you purchased goods with Bitcoin within a week of acquiring it, then the ATO would consider you holding Bitcoin as a personal use asset.

The classification of cryptocurrency as a personal use asset or an investment can make a considerable difference to your tax outcome. With the ATO heavily scrutinising cryptocurrency in tax returns, it is essential you get this right.

If you have any concerns regarding cryptocurrency and your tax, you may reach us via our website or email us at crypto@armada.com.au and one of our crypto tax specialists will be in touch.