Bitcoin Part 1 – Personal Investors

Martin Co — Thu, 18 Jan 2018 01:29:07 +0000

There has been plenty of press coverage on bitcoin, but what are the tax consequences if you decide to join the craze? Well, that depends on whether you are running a business, or if you are acquiring bitcoin for personal investment. Here we examine the tax effects if you choose to invest in bitcoin on a personal level.

What is bitcoin?

Bitcoin is the term for a type of cryptocurrency, a digital currency, created in 2009. Bitcoin currency transactions are entered on a peer-networked ledger – called the blockchain – agreed at the same time by multiple hosts. Balances are created and kept using public and private “keys”, long strings of numbers and letters linked through mathematical encryption algorithms. The public key serves as an address to which others may send bitcoin, rather like a bank account number. The private key, which is like an ATM PIN number, is meant to be kept secret and is used to authorise bitcoin transmissions.

Income tax and GST

If you decide to acquire bitcoin as a personal investment, provided you are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale. Conversely, you will not be allowed any deductions for any losses made in relation to your bitcoin investment. In addition, there will be no GST consequences for you where the bitcoin transaction is not a supply or acquisition in the course of furtherance of an enterprise.

Beware, however, that whether or not you’re carrying on a business, and whether or not an acquisition or supply is in the course of furtherance of an enterprise, depends on a number of subjective factors. The factors involved in determining whether you are carrying on a business or the furtherance of an enterprise also differ, which means you could be subject to the GST regime and not the income tax regime and vice versa. It is best to consult us to find out about your individual situation and to ensure that any bitcoin activities are not captured under the income tax or GST regimes.

Using bitcoin for purchases

Bitcoin is not only for investment purposes and some people use it in the same way as one would use money.

Where you have bitcoin and you use it to purchase goods or services for personal use, capital gains or losses from the disposal of bitcoin will be disregarded provided the cost of the bitcoin is $10,000 or less.

Where the cost of bitcoin is $10,000 or more, there may be CGT consequences on disposal and you need to keep records including the:

date of the transaction;
amount in Australian dollars sourced from a reputable online exchange;
purpose of the transaction (ie, what it was for); and
other party’s details (if no other details are available, the bitcoin address would be sufficient).

Unsure? Need more information?

Whether or not you are carrying on a business or making a supply in furtherance of an enterprise could be contentious, especially in cases where large numbers of trades and/or sums of bitcoin are involved. To ensure that you stay on the right side of the tax man contact us today.

Please Contact MartinCo for more information click below >

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Homes are the best investments for you and your kids

Digital COG — Tue, 21 Feb 2017 04:31:21 +0000

As financial planners, helping our clients manage their family home is one of the most enjoyable things we do.

We love family homes. For a start, we love families – and families live in family homes. What’s more, enjoying your home is the easiest way to enjoy life in general. A happy home – and a home you are happy with – is an essential part of a happy life.

But that is not the only reason we love helping people get the best family home they can afford. Family homes are not just great places to live. History shows that family homes are also cracking investments. Over the last 20 years Australian property has averaged a return of more than 9.5% a year, including both rents and capital gains. That means that house values doubled every seven or eight years. (Yes, these are average figures across the country and not every market did this well. But all markets did at least quite well over that time period).

Things are even better when gearing is involved. ‘Gearing’ is a fancy word for borrowing – and most people borrow money to buy their family home. If you start with 20% equity (and borrow the remaining 80% of the purchase price), and the house doubles in value, then the value of your equity increases to 60% of the increased value of the house. The proportion of debt halves when the value of the property doubles.

But that is not all. Even better is the fact that the family home does not attract Capital Gains Tax (CGT). This means that you do not pay tax when selling a home that has increased in value. This is a central plank of Australia’s taxation system and it is not going to change any time soon.

Combine this tax treatment with the long-term results that Australia’s housing market has achieved, and you find that most Australians are living in tax-free investment machines. For example, if you are in the 45% tax bracket and you own a $1,000,000 property and it goes up in value by just 5%, or $50,000, that’s the equivalent of earning an extra $92,500 a year in pre-tax salary. This is because you would have to earn $92,500 and pay tax at 45% to be left with $50,000 in cash. What’s more – you can’t live in cash. That is why houses are usually better places to hold wealth than cash.

The last 20 years has seen constant growth in the value of Australian homes, with Perth being an exception in the last few years (having grown by more than the national average prior to the tailing off of the mining boom). This has a lot to do with our constantly growing economy (we have not had a recession for 25 years now). In addition, immigration has been a particularly important driver of the national economy. And guess what? People still want to come to live in Australia. That won’t change any time soon.

The Australian obsession with home ownership is likely to continue. It makes sense to invest wisely in the home. We strongly encourage home ownership strategies, and their close cousin, debt management strategies, whenever we meet with a client. Even if the rate of growth slows (or we get a negative year or two), long term the right housing purchase turns out well. What’s more, this ‘investment’ gives you a place to live as well.

(One word of clarification: when we say housing we do not mean high rise apartments. Their economic future is very different to homes and units in small blocks).

And our advice is not just about homes for clients. We also help with homes for the children of clients and even sometimes the grandchildren of clients. Indeed, it is these adult ‘kids’ that our clients tend most to worry about. “How will our kids ever afford their own home?” is one of the most common things we are asked. In our blogs and ebooks for this month and next, we will discuss various ways to make buying and holding property as easy as possible. And we will not just focus on your home. We will look at ways to help other people – typically your kids – own their homes as well.

Feel free to contact MartinCo now and we can talk you through ways that make home ownership much more achievable for you and the people you care about.

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