Is crypto a no-no?

Cryptocurrency is interesting, but unregulated and difficult to account for.

Cryptocurrency may sound like something more appropriate for the latest high-stakes thriller than your office — or financial portfolio — but in reality, it's a growing new asset class increasingly worth taking the time to understand. This is as true for small businesses as well as regulators, with the Senate's Committee on Australia as a Technology and Financial Centre exploring and calling for greater regulations and clarity around crypto and banks.

So what are these digital monies all about?

Also known as virtual currency, this form of payment does not exist in a physical form. It's not legal tender and it's not regulated by any government or single private entity. No notes or physical coins are involved, but rather digital wallets in which cryptocurrency is held and protected by pin numbers and passwords as well as by a virtual accounting ledger known as the blockchain. It's therefore considered a high-risk investment or asset, because it's only worth what buyers are willing to pay for it at a given moment in time.

So should your company invest in cryptocurrency? Accept payments in cryptocurrency? Convert assets into crypto? These are difficult questions with no easy answers.

About crypto
According to Yahoo Finance, at least 11,000 different virtual currencies exist. The two most prominent are Bitcoin and Ethereum.

To begin dealing with any of these currencies, it's important to step back and recognise they are very high-risk assets whose value can fluctuate wildly. Plus, they are susceptible to being lost to hackers.

Because they are an emerging class of currency, it's essential to note how difficult it is to account for cryptocurrency. A variety of regulations apply to businesses that use crypto in Australia, as detailed in guidance from the Australia Securities and Investments Commission and in additional fact sheets from the Australian Tax Office. For now, however, it appears that interest in this new form of payment has yet to flag on account of any such regulations.

Accounting for crypto
Indeed, having cryptocurrency on your books can be challenging, as the field of accounting is still catching up to this new online currency. It's a tricky medium; it can be exchanged for goods and services in the barter economy, many intangible, but is unregulated by governments.

To begin thinking about how cryptocurrencies are valued, consider how fine art is valued. Paintings are of value, but their value is intangible until the moment they are commissioned, auctioned or sold or bartered for. Its value is what people are willing to pay for it — and each person might place a different value on it. As such, cryptocurrency is, to some extent, viewed as an intangible asset. That being said, the ATO makes clear that if you receive crypto as a business in return for goods or services, you must include the currency's value in Australian dollars at the time of purchase when calculating income for tax purposes.

If you are holding digital currencies, or are considering holding them, do reach out to us for tax advice.

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