You need to work out your cryptoasset income and expenses before you can work out your net income (or loss) for your income tax return.
There are further rules you need to be aware of if your cryptoassets are trading stock.
Cryptoasset income
Your cryptoasset income might include income from:
- mining cryptoassets (such as block rewards and transaction fees, including income from a mining pool)
- staking cryptoassets or using a staking-as-a-service provider
- lending cryptoassets to another person (including crypto 'interest')
- selling or exchanging cryptoassets (including mining rewards)
- getting paid in cryptoassets for goods or services you provide.
Usually these amounts are income in the income year they are received.
If you hold cryptoassets as trading stock, your income also includes the closing cost of your cryptoassets. This is the cost of the cryptoassets you hold as trading stock at the end of the income year.
Cryptoasset expenses
The type of expenses you can claim will depend on whether you are in business or not. However, you can generally deduct the following expenses from your cryptoasset income.
- The cost of your cryptoassets. This is the amount you paid for your cryptoassets including any transaction fees.
- Depreciation of capital assets such as computer hardware or software.
- Interest charged on money you’ve borrowed to buy your cryptoassets (only if any profit from their sale is taxable).
- Other expenses in relation to your cryptoasset activity. For example, if you're a miner this could include electricity or rental costs.
If you hold cryptoassets as trading stock, your expenses also include the opening cost of your trading stock. This is generally the same as the closing cost of your trading stock at the end of the previous year. If it’s your first year in business you may not have opening stock.
You can usually claim a deduction in the income year you incur the expense. Generally this is when you make a payment. If you do not hold cryptoassets as trading stock, the deduction for the cost of cryptoassets is only available when you sell or exchange them.
The cost of cryptoassets
It can be difficult to determine the cost of your cryptoassets at the time you sell them. This is because it’s not always possible to separately identify the cryptoassets you sell when you own multiple units of the same type which you received at different times and prices.
If you cannot separately identify your cryptoassets you can use either of these methods to allocate a cost to them:
- first-in first-out (FIFO)
- weighted average cost (WAC).
You cannot use the last-in first-out (LIFO) method.
You’ll then be able to work out a cost for the cryptoasset you sold or exchanged. You may need to talk to a tax advisor or accountant to find out how to do this.
You must use the same method consistently from year to year and keep records of the method you use.
The cost of cryptoassets if you’re a miner or you accept payment in cryptoassets
Sometimes you might have taxable income when you receive cryptoassets and again when you sell those same cryptoassets. This can happen if you are a miner or when you accept payment in cryptoassets.
If your cryptoassets are not trading stock, the cost you claim when you sell or exchange your cryptoassets is equal to the value of the cryptoassets at the time you received them.
If the cryptoassets you received become your trading stock (for example when you’re in business as a miner) you can claim a deduction for the cost of any mining rewards that are trading stock in the year the rewards are returned as income. This cost will be equal to the value of the cryptoassets at the time you received them.
Applying the trading stock rules is not easy. It’s a good idea to talk to an accountant or tax advisor. They can give you more information about how the rules apply to your situation.