Recent research from Roy Morgan indicated that 5 per cent of the population now owns at least one cryptocurrency with an average investment of just over $20,000 each.

With tax time fast approaching, H&R Block director of tax communications Mark Chapman said that Aussie crypto investors should be thinking about the tax implications of their investments.

“It’s surprising how many people go into crypto investment and simply don’t consider the tax implications,” he said.

One misconception highlighted by Mr Chapman is that taxpayers can buy up to $10,000 of cryptocurrency and avoid paying capital gains tax (CGT) by taking advantage of the personal use exemption.

"This exemption only applies where the cost of the cryptocurrency does not exceed $10,000 and you can demonstrate that the cryptocurrency was to fund genuine personal consumption, such as paying for a holiday, a car, your wedding, etc,” explained Mr Chapman.

“Mistakenly relying on this exemption is one of the biggest reasons people fall foul of the ATO; expect to be asked to provide proof that you either did – or intended to – use your cryptocurrency to fund personal spending on goods and services.”

If the cost of a crypto-asset exceeds $10,000, the personal use exemption will not be available to the taxpayer and CGT will apply regardless of whether the asset was for personal use.

Mr Chapman said that the disposal of crypto would generally be subject to CGT, which is calculated based on the difference between the amount an individual paid for the asset and the amount they disposed it for.

Disposal can include selling, exchanging, gifting or trading crypto as well as using crypto to pay for goods and services.

“Any profit is subject to CGT, which can potentially be discounted by 50 per cent if you hold your crypto-asset for more than 12 months. If you have undertaken many trades during the year, this could make calculating gains and losses difficult,” noted Mr Chapman.

However, if an individual has acquired crypto to trade it, they could be considered to be running a business of crypto trading. If this is the case, Mr Chapman indicated that the individual would instead need to pay income tax on the business profits.

“If you buy and sell cryptocurrency on a regular basis with a view to making a profit, then the profits on disposal of the cryptocurrency will not be subject to CGT but will be assessable income since you will be regarded as a trader rather than an investor,” he said.

“It can be a fine line between being an investor and a trader – broadly speaking if you are turning over your cryptocurrency every few days chasing profits, you have many transactions and you are running a business-like structure you will be a trader. If you are holding the cryptocurrency with a view to long term gain, you are likely to be an investor.”

Due to the complexity of crypto investing and trading, Mr Chapman suggested that individuals should use a tax agent who understands the appropriate tax implications.

“H&R Block, for example, uses CryptoTaxCalculator, a software program that is able to consolidate all digital transactions across multiple wallets, to calculate capital gains and losses of the previous year, and what your tax on each trade may be,” he added.