Win or lose: how the tax office sees it

If you purchase Bitcoin or other cryptocurrencies as an investment, any gains you make will potentially be subject to capital gains tax (CGT) since they are regarded as an asset for tax purposes (like shares or real estate).

The gain is calculated as the difference between the cost of the asset and the proceeds and if you own the coin for more than 12 months you should be entitled to the 50% CGT discount, which effectively halves the tax you pay on your gain.

Similarly, if you lose money on your investment, you'll make a capital loss that you can offset against other capital gains.

If the original cost of the coin was less than $10,000 and you acquired it with a view to using it to purchase goods or services for your own con sumption (such as food, entertainment or other retail goods), any resulting gain from the disposal of the coin will be CGT free, no matter how big the ultimate gain. If you intend to rely on this exemption, make sure you can demonstrate to the tax office that you genuinely intended using the coin for personal consumption.

If you intend to trade in cryptocurrency, any profits you make will be assessable income, so you'll pay income tax on your net profits (the difference between the profits from your trading less any expenses incurred). The difference between a trader and an investor is that a trader normally buys and sells assets frequently with a view to short-term profits, while an investor buys and holds an asset with a view to longerterm growth.

Remember to keep records of all your coin purchases and sales (converted into Australian dollars) and any associated expenses, such as fees and commissions.

Mark Chapman is director of tax communications at H&R Block.

If you intend to trade coins, any profits will be assessable income