Cryptocurrency has become one of the most talked-about practices in the past decade. The art of crypto runs on tokens exchanged for actual currency. However, people may use these to buy goods and services, much like any other currency in the world.
The entire operation is run through blockchain technology, which is like a virtual assistant through all systems. In every computer, tablet, or phone, the blockchain system is responsible for managing and recording all the transactions made by the users. With this, a solid asset for the practice is the security feature involved.
However, things change when one plans on selling or swapping cryptocurrency to make a profit in Australia. Much like anything in life, cryptocurrency is subject to taxes in the form of capital gains tax or CGT, and the Australian Taxation Office makes this known to all involved in crypto trading. That is why, much like regular tax systems, one needs a Crypto tax calculator.
How Do Cryptocurrencies Work In Australia?
According to the Australian Taxation Office, 500,000 to 1 million people own cryptocurrency. The currency entered the public eye back in 2009, but the office did not release its guidelines until 2014.
Instead of recognizing it as a currency, cryptocurrency is recognized as a property. This means that these are assets subjected to the capital gain tax. These are called gains simply because one sells the “property” for a higher price than acquired. There is also a capital loss where the owner “disposes” of the account for less money than when they bought it.
Why Are Crypto Tax Calculators Important?
Many crypto users make use of their tax calculators because they need to measure the state of their accounts. The calculations involve the potential gains or losses they have, and they need to calculate the net value of the values. Along with gains and losses, they must determine the amount of gains tax they must pay before “disposing” of their crypto accounts.
The idea of having the crypto calculator is that people may know if they will profit or lose money if they decide to sell it. In addition, planning and analyzing the market of all cryptocurrencies is much easier for investors.
How Do They Work?
Cryptocurrency is a property, and therefore, it is subject to the capital gains tax. Many factors contribute to the CGT of cryptocurrency. There are four common factors to consider.
The first is the sold price, and this is the total amount of Australian Dollars one used to “dispose” of the asset. For example, one person sold their Bitcoin for AUD 20,000. Another possibility is that people may exchange their Bitcoin for another cryptocurrency such as ETH. But, of course, investors must always trade the same amount.
The second factor is the cost basis, and this is the original amount of money one paid for their cryptocurrency. In simpler terms, this is the money that one invested in their account, including fees and other costs. So, for example, the value of the Bitcoin grew to AUD 20,000, but the user bought it for AUD 5,000.
The third is the taxable income, which involves the total taxable income for the year the asset was sold. One thing to remember about this is that it includes salary and other income earned within the year. From here, the taxes may be calculated.
The final aspect of calculating crypto tax is the length of time the user owned the account. According to guidelines, people are eligible for a 50% CGT discount if the crypto asset was active for longer than 12 months. What this means is it will include only half of the CGT in the entire computation.
From here, people may now calculate for the CGT they need to pay before they decide to close their account or shift to another one.
Calculations and Gains?
Looking at the nature of the tax calculator, a big part of investing in cryptocurrency is the gain and loss from transactions. After all, people invest in companies or businesses to earn from it.
For example, a user’s sold price is AUD 5,000, and it grows to AUD 15,000 after being active for 15 months. As it has been happening for 12 months, this person will receive a 50% discount on their CGT which means that they only need to pay tax for half their capital gain, which is AUD 10,000. As for the other half of the capital gain, this becomes the accessible income.
However, with the inclusion of her yearly salary, the tax percentage is determined through brackets. This percentage will then be subtracted from the AUD 5,000, and this gives them their estimated CGT.
CGTs can be pretty frustrating to those looking to earn more, and people are trying to find alternatives to reduce this even further. However, the best option for future crypto investors is to hold their accounts for more than 12 months. This is the only way to reduce taxes. From here, crypto tax calculator businesses such as Swyftx will help determine all the values.
Losses?
One possibility that all crypto investors must be aware of is if their accounts record a capital loss. This happens when one sells their crypto at a lower price than the money they spent for it. This is one way to reduce CGTs, but one ends up paying instead of earning, which is undesirable.
In this case, the tax calculators should also notify the users of their account’s condition.
Cryptocurrency is seen as a valuable and convenient asset for anyone to use. Still, in areas such as Australia, users must pay taxes as it is considered a property. The numbers and calculations of earnings alone are intimidating.
Still, with a good crypto tax calculator from a reliable business, this will surely make cryptocurrency a much easier thing to handle in the long run.
Salman is a prolific environmental writer, and has authored more than 500 articles in reputed journals, magazines and websites. He is proactively engaged in creating mass awareness on renewable energy, waste management, sustainability and conservation all over the world.
Salman can be reached on salman@cleantechloops.com
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