Crypto-to-Crypto Exchange: This a Tax Event? Yep!

Sometimes, you might want to swap one type of crypto (like Coin A) for another (like Coin B). We call this a "crypto-to-crypto exchange" or "swap."

When you swap one crypto for another, something called a Capital Gains Tax (CGT) event happens. So this article will explain what that means and why you should understand this when it comes to .

What happens when you swap crypto?

When you trade one crypto for another on CoinJar, it’s like you’re "selling" your old crypto and "buying" a new one, even though no actual dollars are involved.

In Australia, this is called a "CGT event" because it relates to Capital Gains Tax (CGT). CGT is a tax you might need to pay when you make a profit from selling or swapping something valuable, like crypto.

The Australian Taxation Office (ATO) wants you to report this so they know if you owe any tax.

Since you’re not getting paid in Australian dollars (AUD) during a swap, you need to figure out the value of the new crypto you’re getting in AUD. This value is called the "market value". It’s what the crypto is worth on the market at the time of the swap. You use this to work out if you made a profit (or loss) on the crypto you gave up.

How to work out the value of the new crypto

When you swap crypto on CoinJar, the market value of the new crypto you get tells you what your old crypto was worth when you swapped it. This is called your "capital proceeds". This is a fancy way of saying the value of what you "sold." You’ll use this number to figure out your capital gain (profit) or loss for tax purposes.

Example: Swapping coins on CoinJar

Let’s say Katrina is a CoinJar user:

-On 5 July 2023, she buys 100 Coin A for $15,000.

-On 15 November 2023, she swaps 20 Coin A for 100 Coin B using CoinJar.

-At that moment, CoinJar shows that 100 Coin B is worth $6,000 in AUD, based on the exchange rates.

So, when Katrina swaps her 20 Coin A, her capital proceeds are $6,000. She uses this to figure out if she made a profit or loss for her taxes.

For example, if her 20 Coin A originally cost her $3,000 (20% of her $15,000), her profit (capital gain) would be $6,000 - $3,000 = $3,000. She’d report that to the ATO.

What if the new crypto has no value yet?

Sometimes, you might swap for a brand-new crypto that doesn’t have a market value yet (for example, if it’s not listed on CoinJar or any exchange yet). In that case, you use the market value of the old crypto you’re giving up instead. This becomes your capital proceeds.

Example: Swapping for a new coin

Katrina again:

-She buys 100 Coin A for $15,000 on 5 July 2023.

-On 15 November 2023, she swaps 20 Coin A for 100 Coin D. Coin D is so new it’s not on CoinJar or any exchange yet, so it has no market value.

(Here’s something to keep in mind. In Australia, the duration for which you held the original cryptocurrency significantly impacts your tax liability. If you held the asset for 12 months or more before swapping, you may be eligible for a 50% discount on the capital gain included in your assessable income. For instance, if your marginal tax rate is 30% and you qualify for the discount, the effective tax rate on your capital gain would be 15%.

Conversely, if you held the cryptocurrency for less than 12 months, the full capital gain is included in your assessable income and taxed at your marginal tax rate, in this case, 30%. Therefore, the timing of your cryptocurrency swaps can have a substantial effect on your overall tax burden.)

-At that time, CoinJar shows 20 Coin A is worth $5,000 in AUD.

Since Coin D’s value isn’t known, Katrina uses the $5,000 value of her 20 Coin A as her capital proceeds. She’ll use this to calculate her capital gain or loss for tax.

Sending crypto between exchanges/ wallets

This is generally not a CGT event. Simply transferring cryptocurrency from one exchange (like CoinJar) to another, or to a personal wallet, is generally not considered a Capital Gains Tax (CGT) event in Australia.

This is because you are not changing the ownership of the asset; you are merely moving it from one storage location to another.

Even though it's not a taxable event, meticulous record-keeping is crucial.

If the transfer is part of a larger transaction that does involve a CGT event (e.g., selling, swapping, or using the crypto to purchase goods or services), then the transfer itself might be relevant for calculating the cost base of the asset.

Some more complex transfers in the Decentralised Finance (DeFi) space, such as wrapping crypto, could potentially have tax implications. So the simple act of moving from a centralised exchange to a personal wallet is usually safe, but when interacting with DeFi, extra care is required.

When using a crypto exchange, keep this in mind

If you’re not sure about your swaps or taxes, you can always check with a tax expert. You can also use a to help you.

You can also just download a at the end of the financial year, and throw it at your accountant. That’s how they make a living! Yay for accountants!