Mining is another way to generate some income in cryptocurrency and with any income generating enterprise, taxes are inevitable. However, calculating your tax liability would depend on the analysis of your activities as whether you are carrying on a business or not.
Mining as a Business
There is no definitive factor in determining whether one is running a business or not. However, the ATO has released some guidelines to consider.
If you have made a decision to start a business and you have taken steps to operate like a business (ie getting an ABNor registering your company name), then you most likely running a business. If you intend to make a profit or if you have been repeating the same activity many times then you are most likely running a business as well. The size of your mining activity and the planning and executing of your actions like a business would also likely constitute as running one.
Any income derived from mining cryptocurrency as a business then your tax liability will be treated in the same way as other businesses. This means that all income derived from mining including from the transfer of the mined bitcoin to another party or the disposal of such coins would be part of your assessable income.
In the event that you have decided to keep the coins and that its value has increased at the end of the financial year, then the increase of the value would also be considered as assessable income.
Any expenses incurred as a direct result of mining (ie electricity costs, purchase of hardware, internet ulitility bill) can be deducted form your taxable income.
Mining as a Hobby
If you are mining as hobby and not as a business, then any income derived from it would be subject to Capital Gains Tax. You would not be able to deduct any expenses incurred from mining as no deductions are allowed when calculating for CGT.
Now even if the value of your mined coins are less than $10,000, the personal asset use exemption would not apply. The primary situation that the ATO considers as a personal use are assets that are kept or diposed for your personal use or enjoyment. In mining cryptocurreny, the main use of the coins are not for personal use or enjoyment.
Get the best advise regarding crypto tax questions by contacting one of our experienced Tax Specialists.