Crypto cards are coming to Australia. What are the tax implications?

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The ability to spend crypto as easily as one could spend traditional fiat currency has long been sought after by many. The rise of new crypto cards in Australia promises users the luxury of spending their digital assets as they would traditional currency. This could arguably close one of the last big gaps between decentralized money and fiat money.

Related reading | The market needs crypto cards for everyday purchases, not another wallet for coins

A wave of products that promise investors an immediate deal with their digital profits regularly floods the market. These products are marketed as quick and easy ways to spend cryptocurrency, with many rewarding users doing so. Australia’s oldest exchange, CoinJar, recently launched a Mastercard backed card. It is said to be Australia’s first native crypto card.

Basically, it allows users to buy, sell, and spend digital assets right from its platform using local dollars. The CoinJars card supports up to 30 different cryptocurrencies. On Tuesday, Cryptospend announced that it will launch a Visa card starting in September. Crypto.com, a global app, is perhaps the most well-known crypto card in Australia. It also operates a loyalty spending program as an additional service.

Of all these products, only one – Crypto.com – recognized a major problem that was not clear to the public. It is the possibility that users are taxed on all purchases.

The fiscal cost of using crypto cards

Each card transaction must be registered with the Australian Tax Office. Consequently, these transactions are likely to be subject to capital gains tax (CGT). This can cause users to pay more than the retail price for any purchase they make.

A spokesperson for the Australian Tax Office (ATO) told Business Insider Australia: For tax purposes, crypto-to-fiat debit cards are treated the same as any other cryptocurrency transaction. At the point of sale, the cryptocurrency is converted to Australian dollars, which triggers a CGT event. “

According to Mark Chapman, director of communications at H&R Block, the risk of the card is that it obscures this responsibility from users. Cryptocurrency debit cards come with a tax bombshell, Chapman told Business Insider Australia. Taxpayers should be aware of this before taking out any of these cards or preparing for a nasty tax surprise down the line. The ATO spokesperson urged people to keep accurate records of all transactions. It’s best to keep records as you go, making copies of receipts and using spreadsheets or crypto accounting software.

Total crypto market capitalization exceeds $ 2 trillion | Source: Total crypto market capitalization on TradingView.com

For this reason, Crypto.com forces users to sell their assets manually before allowing them to spend the profits. The purpose of these frictions is to create a conscious decision on the part of the investor to liquidate the asset they wish to liquidate based on their tax obligations and financial situation, said Karl Mohan, CEO of the Asia-Pacific at Business Insider Australia. Mohan says the app also has a built-in tax tool to help users stay on top of their obligations.

How crypto cards work

There are different types of cards: credit, debit, and prepaid cards. They are quite easy to use. Currently, the cards do not allow cardholders to spend directly on cryptocurrency. The exchange between crypto and traditional currency is initiated at the point of sale. Crypto holdings are transferred from a client’s wallet and Australian dollars directly to their bank account.

Related reading | 5 best crypto cards you should know

Cryptocard.com explains, “When it comes to crypto credit cards, the crypto part is only about the crypto rewards you earn on your card spending. The card itself is funded by the line of credit provided to you by the card provider. This means that when you use the card on a daily basis, you are funding these transactions with your line of credit in fiat currency, rather than cryptocurrency.

“Crypto debit cards and prepaid cards work slightly differently. With these cards, cryptocurrency is mined from your wallet and converted into fiat currency at an exchange rate determined by the card. You then spend or withdraw the fiat currency as needed, using the Visa, Mastercard or EFTPOS network.

Featured image from Crypto News AU, chart from TradingView.com

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