We know that crypto moves at a fast pace. There's a saying in the crypto space that what happens in a month in crypto is equivalent to years
in the normal finance market. The ethos is to move fast and break things to build a fully decentralised, global, and open-source foundation
for the future of finance.
However, like the blockchain with its immutability and chronological order of events, history can only be written once. It is often
the case that we find costly mistakes are made when we receive the tax information and are preparing and lodging the crypto tax returns
after the year's end.
And trust me, it's not just your first-time cyclers who get caught out; even the most seasoned cryptopians can often fall victim to
the unintended tax consequences and outcomes that the ATO can dish out!
So, with that being said, the number 1 reason why you need a crypto specialist is to:
Mitigate costly mistakes!
After all, you definitely don't want to find out after the fact that you could have saved (thousands, if not more) in tax and gave the ATO
more money than you should have.
Often, these mistakes could be avoided through proper proactive planning and regular engagement with a crypto tax specialist like
Case Study 1 – Hype Cycle/Narrative Trader (Alex)
Alex is a hype cycle trader and follows narrative trades. Outside of crypto, he is an engineer working in FIFO and earns around $180,000.
He purchased $10,000 worth of SOL (Solana) at or around the time of the FTX collapse and the issues with Sam Bankman-Fried for $8. To
date, around 13 months later, SOL is trading at $75.
Seeing an opportunity in the AI narrative to take hold for the next bull run before the Bitcoin Halving, he cycles 50% of all his capital
into AGIX (Singularity Net) for an average cost price of $0.30 per token, for a holding of 1,116,667 tokens in AGIX.
At the end of the financial year, around 30 June, there was negative sentiment in the crypto space due to Elizabeth Warren successfully
passing a bill which identifies all users of hardware wallets as needing a banking license. Unfortunately, the narrative trade did not go
his way and the price of SOL and AGIX dropped to $20 and $0.06 respectively.
The swapping of coins from SOL to AGIX is technically a taxable event and is subject to CGT. The CGT payable is 47% of $295,000/2 =
However, you will see that the value of the AGIX portfolio is only worth $67,000. Not only does he need to sell all of his AGIX tokens
(at a loss) to pay the tax, but he will also need to sell some of his SOL tokens as well ($2,325 worth) to cover.
If Alex had proactively planned the capital rotation, we would have recommended the tax be set aside before investing in the AGIX token.
The $69,325 could have been parked in either cash savings or a stablecoin for when the tax is ultimately due to be paid. Alex would have
only received 885,583 in AGIX; however, the end result is that the tax is covered without Alex having to sell any of his remaining coins
to cover the tax. Not only is it a tax cost but also the cost of future upside in the event the coins appreciate in price once more.
Case Study 2 – Leverage BTC Trader
Susan is quite an experienced trader and knows how to make money from BTC using leverage trading strategies. Outside of crypto, she is a
full-time real estate agent earning $200,000 (given the current property market). She also has a mum who is retired, whom she helps
support given her financial situation.
She put $150,000 into her personal crypto trading account on Binance, and during the year she made 250,000 transactions for a total
profit of $750,000. She closes out all her positions before year-end into fiat.
Realistically, Susan is a crypto trading business from the ATO’s perspective. Accordingly, the income generated is not considered a
capital gain. Accordingly, the tax applicable is subject to her personal marginal rates (47%) on the net profit of $650,000. The tax for
the year is $305,500.
If Susan had booked an advisory meeting with us, we would have told her to establish a private crypto trading company registered with
ASIC. This would have saved her a remarkable $143,000 (almost 75% of her salary). We would have advised her to also set up a family trust
so that the dividends of the company can be distributed in a tax-effective manner to her mum, whom she is financially supporting. The
trust distribution could have resulted in a further $5,000 refunded every subsequent year she makes a tax-effective distribution to her.
Case Study 3 – Second Opinion from a Crypto Specialist
Alan is a full-time lead developer for a SAAS company in Brisbane. He earns $250,000. He also spends all his other spare time in the
crypto space. Currently, he has a portfolio dealing in very low-cap coins and tokens in which he expects would make a significant gain.
At face value and during the last bull run, he made $350,000 in net capital gains (2022 financial year) and given the macro environment,
he crystallised a loss of $150,000 for the 2023 financial year. For both of these years, Alan simply used a local tax accountant who does
not understand crypto to assist him with preparing his taxes.
Fortunately, Alan uses the Koinly software to assist with his crypto tax affairs. The local accountant took the report as generated by
Koinly and simply data entered these figures into the tax return labels. CGT payable for the 2022 financial year was $82,250. The capital
losses of $150,000 are simply carried forward with no immediate tax benefit in the 2023 financial year.
Feeling that the service he received was quite generic, Alan decides to get a second specialist opinion on his crypto tax accounting and
tax return. Upon a deep dive into his crypto affairs, for the 2022 year we assisted with:
- Identifying duplicate transactions for an API feed from multiple wallets (double tax)
- Identifying internal transfers from one wallet to the other (non-taxable)
- Identifying missing cost basis transaction (reduced CGT payable)
- Determining which airdrops were initial allocation airdrops (non-taxable)
- Determining that the conversion of an initial token was not a token swap (non-taxable)
Overall, we managed to get the tax bill down to $35,250, a $47,000 tax saving.
Further, for the 2023 financial year, we had determined that most of the transactions were related to options trading; which vastly
differed from his activities in 2022 that were capital related.
Section 15-15 (profit-making undertaking) rules apply in this instance and instead of carrying forward the losses, Alan is able to deduct
the $150,000 loss against his other income like his salary and wage. Overall, the additional deduction of the crypto losses resulted in a
further $63,200 in taxes saved.
How we can help avoid these costly errors
Navigating complex transactions
New innovations in the crypto space happen regularly – being proactive about how this is viewed from a reporting and compliance perspective
can go a long way to avoiding future hurdles. We can help bridge the gap between both worlds.
Not all events are taxable – but if they are, you need to plan for it (or plan to fail).
Regular and accurately reporting
It can be dangerous to solely rely on the API feeds from exchanges via online software as more often than not, it can misinterpret the data
from a tax perspective. Blind trust and an over-reliance on these programs can lead to significantly overpaid taxes (as identified in the
case study above).
Regular proactive reporting can be the difference between maximising your portfolio or destroying it.
Staying compliant with ATO regulations
The ATO regularly updates its guidelines related to cryptocurrency taxation. A specialised crypto accountant stays abreast of these
changes, ensuring your practices align with the latest regulations.
Don’t paint an ATO target on your back.
Strategic tax planning
Beyond mere compliance, a crypto-savvy accountant can offer strategic tax planning tailored to your specific crypto-related activities.
This can help you minimise tax liabilities and maximise what’s left in your pocket. Having a sounding board for your ideas and planning
allows optimised performance of your crypto affairs.
Make history – not be part of it
At times, that 30-minute advisory consultation has the opportunity to save you thousands of dollars or help you optimise your affairs
further. To make decision the even easier, our costs are also tax-deductible which can help you further reduce your crypto taxes.
Don’t be like Alex, Susan, or Alan. Make history the way you want it to be and write your own tax blockchain ledger the way that best suits
you. Book in now to start this journey together: book-appointment