Investor or Trader in Crypto?

Posted by Admin PWA on

Taxpayers who invest into crypto should be wondering if they are considered a crypto investor or crypto trader and the difference between the two.

Investor: Typically buy, sell or swap crypto with the intention of holding it for long term growth and aim to generate returns over a long period of time.

Tax treatment:

  • Crypto are assets and are subject to CGT when sold or exchanged for another crypto
  • Capital losses can offset capital gains
  • Eligible for the 12-month discount when crypto was held for more than 12 months

Trader: Typically intents to buy and sell crypto for short term profits

Carries on a business:

  • Plans when to buy and sell
  • Keeps extensive records
  • Trade repeatedly and in volume
  • Invest significant capital
  • Has a separate office space

Tax treatment:

  • Crypto is treated like trading stock
  • Profits are treated as ordinary income and should be reported in the tax return. This includes any gains from the sales and any trading fees/ commissions incurred
  • Losses are treated as deductible expenses
  • Not eligible for the 12-month discount when crypto was held for more than 12 months

If you have crypto and need guidance on this matter, please contact our office at 03 9973 5905.

Capital Gains Tax on Inherited Properties

Posted by Admin PWA on

When a property is inherited, the recipient is considered to have acquired the property at market value at the time of the inheritance. If the recipient decides to sell the property in the future, they may be subject to capital gains tax.

Capital gains tax is calculated by subtracting the cost base of the inherited property from the sale price. The cost base includes the market value of the property at the time of inheritance, as well as any additional costs such as renovations, repairs, or improvements.

If the inherited property was rented out, there are additional factors to consider. If the property was generating rental income, the recipient may be subject to income tax on that rental income. Additionally, the rental income may affect the cost base of the property, as any expenses related to the rental property can be used to offset capital gains tax.

For example, let’s say John inherited a rental property from his father in 2010. At the time of inheritance, the property was valued at $500,000. John decided to rent out the property and has been receiving rental income of $20,000 per year.

In 2021, John decides to sell the property for $800,000. His cost base includes the market value of the property at the time of inheritance ($500,000), as well as any additional costs such as renovations ($50,000). His total cost base is $550,000.

The capital gain on the property is therefore $250,000 ($800,000 – $550,000). John will be subject to capital gains tax on this amount. He may also be subject to income tax on the rental income he received over the years.

It’s important to keep thorough records of any expenses related to the inherited property, as these can be used to offset capital gains tax. If you inherited a property and would like more assistance on this matter, please contact our office at 03 9973 5905.

Main Residence Exemption

Posted by Admin PWA on

The sale of a property may be subject to capital gains tax (CGT) depending on a few factors, including whether the property is the seller’s main residence. The main residence exemption is a valuable tool for reducing or avoiding CGT on the sale of a property that is the seller’s main residence.

To be eligible for the main residence exemption, the property must have been used as the seller’s main residence for the entire period of ownership. This means that any periods where the property was rented out or used for business purposes may affect the exemption. However, there are a few exceptions to this rule, such as where the property is used as a place of business and the owner lives on the premises.

The main residence exemption also has a six-year rule, which allows a seller to treat a property as their main residence for up to six years after they have moved out if the property is not used to produce income during that time. This can be beneficial for sellers who choose to rent out their property for a period before selling. The property must also be on land of 2 hectares or less.

It’s important to note that the main residence exemption can only apply to one property at a time, and that there are additional rules and restrictions for foreign residents and trusts.

In summary, the main residence exemption is an important consideration for anyone selling a property in Australia. By carefully considering the eligibility criteria and any periods of rental or business use, sellers can potentially reduce or avoid CGT on the sale of their main residence. If you require more assistance on this matter, please contact our office at 03 9973 5905.