The Australian Taxation Office (ATO) has recently released new crypto-related guidance for Australian small businesses, noting the trend of cryptocurrency becoming more "mainstream" and being used increasingly within small businesses across Australia.
Here is what you need to know as a small business:
Crypto Asset Business Expenses If your business involves the buying and selling of crypto-assets, the cost of purchasing those crypto-assets is considered a deductible expense. This means that small businesses can reduce their taxable income by the Australian dollar amount spent on acquiring the crypto-assets for its business operations.
Payments for Services in Crypto If your business receives crypto-assets as a payment for services, then the Australian dollar value of the crypto-assets is treated as ordinary income for the business. This means that the business will need to report this income when filing its tax returns.
Salary and Wages Paid in Crypto If your business uses crypto-assets to pay salary or wages to employees under a valid salary sacrifice arrangement, this is considered a fringe benefit. As such, it is important for small businesses to understand the tax implications for fringe benefits as they are often significant (fringe benefits are taxed at the highest marginal rate).
Profits from the Sale of Crypto The taxation treatment of the profits from the sale of crypto-assets depends on whether the taxpayer is conducting a crypto-asset trading/selling business or simply investing in crypto-assets. If it is operating a crypto-asset trading business, then the assets are treated as trading stock and any proceeds from selling them are assessable as ordinary income. On the other hand, if the business is holding crypto-assets as an investment, then the eventual disposal of crypto would trigger a capital gains tax (CGT) event.
Record Keeping Record keeping is a problematic issue that has plagued the ATO and taxpayers alike since the inception of cryptocurrency. The ATO reiterates that keeping detailed records of crypto transactions is crucial for tax compliance. The ATO has already provided some brief guidance on this topic, however the inherent nature of decentralised protocols and cryptocurrency dealings mean that keeping proper records is a task that is a lot easier said than done.
The ATO's latest web guidance on crypto-assets is welcome. However, there remains substantial tax compliance gaps (both from a legislative and non-binding web guidance perspective). Given the inherent complexity of taxation laws and crypto-assets, it is advisable to seek assistance from legal and tax professionals in relation to your tax obligations when engaging in crypto-asset related business. While the use of cryptocurrency offers various opportunities for small businesses, it is essential to stay informed about the associated tax obligations to avoid nasty penalties and unforeseen assessments.
Written by Luke Higgins and Steven Pettigrove
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