Tax Options for Crypto Losses

If you’ve made a loss on crypto, you might be wondering where that leaves you in regards to your tax position. Since Bitcoin was found by the AAT to not be a foreign currency, as we discussed in the first article of this series here, it is generally treated similarly to shares in this sense. 

For active traders: non-commercial loss rules may apply

If you are an active trader, you may be able to offset this loss against your other income. You generally can’t claim a loss for a business that is a hobby and unlikely to ever make a profit. The non-commercial loss rules determine whether you can in this case or have to defer the loss until you make a profit. 

To be able to offset this loss, you must satisfy two requirements. The first is the income requirement, which is met where the sum of the four elements for calculating your income is less than $250, 000. The elements are:

  • Taxable income, which is the assessable income minus your allowable deductions for a year.
  • Reportable fringe benefits, which is shown on a payment summary if it passes the threshold and takes part in this calculator.
  • Reportable super contributions which include your reportable employer super contributions and your personal deductive contributions.
  • Total net investment losses from 
    • Rental property investments such as negatively geared rental properties
    • Financial investments such as negatively geared share portfolios 

The second requirement is to pass at least one of the following four tests:

  • Your assessable income, made up from your ordinary income (such as gross earnings excluding GST) and statutory income (such as capital gains) from your business activities must be at least $20, 000 for the year. 
  • Your business has made a tax profit in three out of the five past years, which excludes any loss from that business that you had earlier deferred
  • You are using real property, which includes land, structures and interest in both, of at least $500, 000 in your business activity on a continuing basis. 
  • You use $100, 000 worth of ‘other assets’ in your business activity. This includes equipment, trading stock, items leased from another entity, and trademarks, patents and copyrights. This does not include real property or vehicles. 

If these two requirements are satisfied, then you may be able to offset your crypto losses against your income from other work. Otherwise, the loss would get parked to the side and you would only be able to claim it against your taxes if you later make profit off crypto.

For passive investors: capital loss rules may apply

If you have made a loss as a passive investor, capital loss rules will probably apply. This would mean you could deduct the loss you’ve made on crypto from your capital gains to reduce your capital gains tax. These must be used at first opportunity which means that if you’ve made a loss in the current year, you must use the loss to reduce any capital gains in the current year.

If your capital loss is greater than your capital gain, you could carry it forward and deduct it from capital gains in later years. There is no time limit for this. It is also important to note that a trading loss can be applied against capital gains but a capital loss can’t be applied against trading gains.


Depending on whether you satisfy the non-commercial loss rules, your main two options are either to use the loss to offset your income or to use it to decrease your capital gains tax, with the option to park it if outweighs your capital gains.

If you have any questions or would like further assistance, please contact us.


How to Prepare for a Payment Plan

Setting up a payment plan with the ATO is one of your best options if you have been or are unable to meet your tax obligations on time. If you opt to ignore it instead, the ATO may enforce action against you which has a high chance of leaving you in a worse position.

A payment plan would allow you to pay your debt over instalments. It’s essential to be prepared and do it right the first time to avoid suffering the harsh consequences of defaulting on these payments.

Your preparation can be split into three main steps: understanding what the ATO expects; understanding how the ATO is likely to perceive you; and planning your proposal to the ATO.

1. Understanding what the ATO expects.

The ATO’s approach is to generally seek for you to pay as much as you possibly can as soon as you possibly can. 

They will also expect you to pay all tax lodgements in full on time in the future. This is important to note because, in this case, you will be paying two sets of taxes at a time: the regular taxes you have to pay and the payment plan debt instalments. 

If you don’t lodge either set of taxes on time, that will be considered a default of the plan, and the ATO may take action against you. This makes it hard to get a payment plan approved in the future.

2. Understanding how the ATO may perceive you

The ATO may presume that you have the money in an asset such as a house or a car. If this is the case and you want a payment plan of longer than 24 months, they might ask for security over your house.

The ATO would otherwise be looking for a exceptional circumstance that would compel them to give you a payment plan and allow you to pay your debts over a longer period.

3. Planning your proposal

To be successful in overcoming your debt, you first need to be honest with yourself about your situation. You need to do the math and see how much you can pay off in each instalment. 

Then, you need to communicate this with the ATO in as much detail as possible. As mentioned earlier, the ATO will seek special circumstances that would explain the need for a payment plan, so it is essential to emphasise your unique situation. Provide them with substantive proof if possible. For example, if you have been unable to pay your tax obligations on time due to a reduced turnover as a result of COVID-19, provide bookkeeping evidence and applications for rent relief if applicable.

Although the ATO will generally not seek actions against you if you’ve had a good record with them, they may pressure you to adopt a tighter payment plan. It is essential to be upfront and realistic with what you can afford. If you take on a payment plan you cannot keep up with, the situation will worsen, and they may be able to seek action against your business with justification.

If at some point during your payment plan period, you find that you cannot pay an instalment, contact the ATO before the due date, and you may be able to modify your instalment amount or due date.

Following these steps will ensure that you have the greatest chance of setting up a successful payment plan and overcoming your debt.

If you require further assistance or have any questions, contact us now.