Cryptocurrencies are no longer just a fad. They must be taken seriously as legitimate currency despite the fact they cannot be seen or touched, according to national boutique law firm Parke Lawyers.
Lawyers, accountants and tax agents have to ensure they have thorough knowledge in this area, while governments need to come up with legislation that effectively controls and manages the ever-increasing popularity of virtual currencies.
This, of course, includes tax implications, says Parke Lawyers Managing Director and Business Law Specialist Jim Parke.
As cryptocurrencies like Bitcoin and Ethereum are a form of ‘cash’ they need to be treated similarly for tax purposes.
From July 1, 2017, the government changed the GST treatment of cryptocurrencies for GST purposes, so that cryptocurrencies are treated in the same way as money. Many trades of cryptocurrency are now disregarded for GST purposes, unless the trade is for a payment of money or digital currency, such as may be made by those in the business of trading cryptocurrencies.
Virtual currencies are treated in a similar way for GST purposes to foreign currency.
While this area is now less problematic, income tax and capital gains tax issues might also arise in transactions involving cryptocurrencies – depending on how and why you are using them.
For this reason, it is important that individuals and businesses dealing with virtual currencies obtain expert advice in regard to legal and financial implications.
If you hold cryptocurrency for personal use (that is, solely to purchase goods and services for personal needs) and you paid $10,000 or less to acquire it, there is generally no tax impact when you dispose of it but if the cryptocurrency is not held for personal use, tax issues can arise. Working out whether or not cryptocurrency was held for personal use will depend upon your particular facts and circumstances in every case, so there are no hard and fast rules that you can apply to get an ‘easy’ answer.
“If cryptocurrency is held as an investment or the cost you incurred to acquire it was more than $10,000