Goal of an Investor
The goal of investors is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of investment instruments.
Although both investors and traders are seeking profits through market participation, generally investors seek larger returns over an extended period via buying and holding investments whereas traders take advantage of both rising and falling markets to enter/exit positions over a shorter timeframe.
Tax Treatment of an Investor
- The cost of buying cryptos is not an allowable deduction – it is a capital cost
- Receipts from the sale of cryptos are not assessable income – however, any capital gain on disposal will be included in assessable income. CGT concessional discounts of 50% maybe available depending upon the investors legal status (individual, partnership or trust) and 10% for Self-Managed Super Funds, provided the investment is held for > 12 months.
- A net loss from the sale of cryptos may not be offset against income from other sources, but may be carried forward to offset against future capital gains
- Costs incurred in buying or selling cryptos are not an allowable deduction in the year in which they are incurred, but are taken into account for capital gains calculations ie: such as interest on borrowed monies for investment purposes.
A mix of Investor and Trader
A taxpayer may be characterised as an investor for some particular crypto/s and as a trader for other crypto/s held. So even if they are carrying out a bona fide business of trading in relation to some or most of the crypto portfolio, if they have been treating one or more crypto as a long-term investment (no trading, no routine research and monitoring, no frequent records of market movements) then the expectation from the ATO will be that this crypto should be taxed as an investment asset when sold.
Conversely, a capital investor who spies a great opportunity and buys and sells one or more specific crypto with a definite profit motive should be taxed as a trader in relation to those cryptos but as an investor in relation to all other cryptos.