Written by Alix Fairley and Andrew Buckley

As cryptocurrency adoption grows, many investors are diversifying their portfolios with both digital and traditional investments. However, there are different considerations that need to be contemplated in relation to the different types of investments. Understanding how each is taxed is essential for managing financial obligations effectively. In this article, we explore the tax treatment of cryptocurrencies and traditional investments such as stocks, bonds, and real estate under the Australian tax system.

1. Capital Gains Tax (CGT) Treatment

Cryptocurrency (Crypto)

Whenever you sell, trade, or use cryptocurrency, you may trigger a capital gains tax (CGT) event. The tax is calculated based on the difference between your purchase price (cost base) and the value at the time of disposal.

If you hold crypto for more than 12 months, you may be eligible for the 50% CGT discount, which reduces the taxable gain. Capital losses can be used to offset other capital gains.

Because the ATO treats cryptocurrency as property, trading one crypto for another can create a taxable event, even though no cash windfall has been achieved. Given the fast-moving nature of digital assets, keeping detailed records of transactions, including dates, values, and fees, is essential for accurate tax reporting.

Traditional Investments

The tax treatment for shares, real estate, and other traditional investments follows similar CGT principles. If you sell an asset for a profit, you’ll need to declare the gain on your tax return.

Like crypto, holding an investment for over 12 months qualifies for the 50% CGT discount, reducing the taxable portion of the gain. However, traditional investments tend to have fewer taxable events, making record-keeping and reporting relatively straightforward. Similar to crypto, trading traditional investments for one another also gives rise to a taxable event.

2. Income Tax on Earnings

Cryptocurrency

Earnings from cryptocurrency activities such as mining and staking rewards, interest from lending crypto and receiving cryptocurrency as payment for goods or services are considered taxable ordinary income at your marginal tax rate. Additionally, the tax treatment of airdrops and hard forks depends on whether you actively participated in the event. If you receive free tokens from an airdrop or fork, these may be

taxable as income at their market value upon receipt.

Traditional Investments

Income from traditional investments is also assessable income. This includes:

• Dividends from shares
• Interest earned from savings accounts and term deposits
• Rental income from investment properties

Australian shares often come with franking credits, which can reduce the overall tax payable on dividend income. In contrast, dividends from foreign companies may be subject to withholding tax in the country of origin. Australian taxpayers often receive a foreign tax credit for dividends received from foreign companies, however double taxation agreements between countries can impact the ability to claim the foreign tax credits. 

3. Record-Keeping and Reporting

Cryptocurrency

Due to frequent transactions across multiple exchanges, wallets, and DeFi platforms, maintaining detailed records is critical for compliance. The ATO requires tracking of:

• Transaction dates
• Value in AUD at the time of each transaction
• Type of transaction (buy, sell, swap, receive)
• Fees and costs associated with transactions

The ATO provides tools such as the Crypto Asset Transactions Report to assist in tracking and reporting taxable events.

Traditional Investments

Record-keeping is typically more straightforward for traditional investments. Investors should maintain records of:

• Purchase costs and dates
• Sale proceeds when disposing of assets
• Expenses related investments (e.g. interest costs, repairs, maintenance, and property management fees)

Accurate records ensure correct capital gains calculations and tax deductions when lodging tax returns.

While cryptocurrency and traditional investments differ in how transactions occur, their taxation follows similar principles. Both are subject to CGT upon sale, and any income earned must be declared as taxable income. The key difference lies in the complexity of tracking crypto investments and transactions compared to traditional investments which typically are simpler to track and maintain records for.

By maintaining accurate records and staying informed on tax obligations, investors can confidently navigate both markets. Given the complexities, especially with crypto, consulting a tax professional is recommended to ensure compliance and optimise tax outcomes.

If you require any assistance in understanding the taxation implications above, please contact your Hall Chadwick QLD advisor.

Hall Chadwick QLD is not a financial advisor. This article should not be taken as financial or investment advice and is general in nature. You should consider seeking independent financial and legal advice to see how the information provided relates to your unique circumstances.