Crypto Mining Tax: How to report your income correctly

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The regulations, reporting and obligations around crypto mining tax can often be quite difficult to understand.  Even the information on mining cryptocurrency taxes provided by the ATO, who are leading the world in cryptocurrency regulation and legislation, can be a little confusing.

To help you understand your obligations for crypto mining tax, we’ve put together this overview to help you understand when you meet the ATO’s requirements of being classified as an individual or business, and how to correctly report your earnings.

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Hobby Mining vs Business

To determine whether your crypto mining activities are considered as hobby or business operations you need to ask yourself a few key questions:

  • What is the intent behind the operations? Are you doing it to support the network or are you doing it to make a profit?
  • What is the equipment you are using? Are you purchasing equipment with the primary intent & purpose to mine on it? 
  • Do you intend to claim tax deductions on the electricity and purchase of equipment?
  • What scale are you operating on?
  • Do you meet the criteria outlined in the ATO’s guide to Am I in Business?

You should consult an accountant to make a determination on whether your activities constitute operating a hobby or as a business.

Hobby crypto mining tax

For individuals mining cryptocurrencies as a hobby, tax on crypto mining uses the capital gains tax system.  When you mine, you receive cryptocurrency for your mining activities, and when you dispose of this crypto for fiat currency such as the AUD, you’ll pay tax on these capital gains.

This does sound similar to how the tax system for crypto trading works right?  There are a few differences you should be aware of:

1) Mined coins are considered capital acquisition, not income

What does this mean for you? Because you’ve mined the coins, your cost-base is $0, making it simpler to calculate your capital gain.  That’s right, your capital gain is just the full amount you were paid when you sold your coins.  When you go to report your tax on crypto mining, you just report the full amount the crypto was worth when you disposed of it.

2) The cost of acquisition is considered to be your operational and equipment costs

Your computer and electricity usage are what you are using to acquire these coins.  This means your equipment and electricity are not tax-deductible.  If you wanted to claim these as deductions, you would have to operate as a business with an ABN. In this case you would be subject to different crypto mining tax rules.  See below for more information.

3) Standard CGT rules, rates and discounts apply for the holding and disposal of coins

If you’ve disposed of the coins within the same year as mining them, 100% of the income you made will be added to your taxable income, and you’ll be taxed at your personal income tax rate.

If you held them for more than a year before disposal, you would declare 100% of the disposed value, however only 50% of their value will be added to your income tax, and you will be taxed on this amount.

So how does this all work?

Note: The following example is not a determination that your activities are considered hobby mining. It is purely an example of how CGT could be applied.

Throughout the year you support the Ethereum blockchain by mining on your gaming computer when you’re not using it for its primary purpose – gaming.  Over the course of the year you accumulate 0.5 Ethereum.  You could choose to stake it on the blockchain, use it to purchase an NFT, dispose of it for fiat, etc.

Whilst staking this ETH wouldn’t trigger a CGT event, disposing of it by selling it, purchasing an NFT, gifting it or otherwise would trigger a CGT event.

For example, say this ETH was worth $1,500 AUD.  If you trigger a CGT event, 100% of this $1500 is reported as CGT and added to your taxable income, where you are taxed at your personal income tax rate.

How does the 50% CGT deduction work?

When you go to sell your coins, you must have held the coins for over 12 months from your last mining payment.  You will report the full amount of this transaction to the ATO, however you will only have to pay tax on 50% of it.  This can get pretty complicated if you’re selling coins you’ve held for over a year but are continuing to mine at the same time, as any coins you sell that you haven’t held for 12 months won’t be eligible for the 50% deduction.  In this case it’s best to consult an accountant who can help manage your tax on crypto mining correctly.

Crypto mining as a business

Updated 1 Feburary 2022

If you have determined that you are in the business of mining crypto, you need to be aware that Crypto mining tax operates differently compared to individuals.  Business mining is taxed according to the trading stock rules with the sale of coins treated as business income.

It is best to consult an accountant on an ongoing basis to assist you with correctly recording and reporting your mining activities as the interactions between business income and trading stock rules can become quite complicated when managing crypto.

We recommend keeping the records of the AUD values of the following items to assist your accountant with calculating your crypto mining business taxes:

  • Each mining payment you receive
  • Any cryptocurrency disposals
  • The value of your portfolio at the start of the financial year
  • The value of your portfolio at the end of the financial year

Tax Deductions

The ATO allows the cost of acquiring cryptocurrency held as trading stock to be tax-deductible.  This means you can claim your electricity and depreciate the cost of equipment and capital assets over the course of their effective life.

As a business, you will NOT be eligible to receive a CGT discount even if you hold the cryptocurrency for more than 12 months. 

Other tax implications

Operating as a business means you will need to complete any associated business & tax compliance activities such as ABN registrations, ASIC compliance, GST, BAS reporting, etc. when you meet the required thresholds.

Crypto Tax Returns with POP Business

Crypto tax sure is complicated isn’t it? If you need a hand sorting out your crypto taxes, get in touch with us today.  We offer crypto tax returns for individuals and businesses and ensure accurate ATO crypto tax compliance with through our partnership with Crypto Tax Calculator and their advanced reporting software.

The information provided in this article is general in nature and is not tax, accounting or legal advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of the information having regard to your own objectives, financial situation and needs and seek the professional advice of an accountant or qualified financial advisor.

POP PTY LTD (POP Business & POP Tax) disclaims all and any guarantees, undertakings and warranties, expressed or implied, and is not liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or incidental or Consequential Loss or damage) arising out of, or in connection with, any use or reliance on the information or advice in this article. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information on this website is no substitute for specialist advice.

Picture of Patrick Sargent

Patrick Sargent

I am a chartered accountant, registered tax agent and a co-founder and CEO of POP. My passion lies in creating high-performing teams, optimising business processes and leading the strategic direction of the business. I am also a member of Chartered Accountants ANZ and a Fellow of the Australian Institute of Company Directors. My expertise includes helping small businesses with a range of accounting services, including: tax preparation, business advisory, accounting and bookkeeping, and personal tax planning, as well as company, trust and partnership tax returns and more.

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