Australian Bitcoiners Brace for Capital Gains Tax Hike with New Strategies
Australia’s cryptocurrency community is scrambling to adapt to a significant shift in capital gains tax (CGT) policy, set to take effect in 2027. The government’s decision, announced in the May budget, to eliminate the 50% capital gains discount for all investments has sent shockwaves through the crypto market, effectively doubling the taxable portion of gains, with only a minor adjustment for inflation.
However, legal avenues exist for crypto holders to mitigate their CGT liabilities, provided they begin planning now.
Some Australian crypto enthusiasts are opting for drastic measures. Fred Schebesta, founder of Finder and a prominent figure in the crypto space, is relocating to Singapore, which boasts a 0% CGT rate, describing the tax changes as a “killer blow.” Yet, less extreme options are available to reduce CGT burdens. These include establishing a self-managed super fund (SMSF), setting up a company to trade crypto at the corporate tax rate, or simply hoping that the political opposition will reverse the changes after the next election.
The New Tax Landscape
Since 1999, Australian asset owners have been taxed on only half of their capital gains. From July 1, 2027, this will change, with individuals facing their full income tax rate on the entire gain. This translates to a 30% CGT for incomes and gains between A$45,000 and A$135,000, 37% for the portion between A$135,000 and A$190,000, and 47% for amounts exceeding A$190,000. All figures cited are in Australian dollars.
Adding to the burden, low-income earners not receiving welfare, such as students and retirees, will be subject to a minimum 30% CGT rate, regardless of the size of their gains.
The sole remaining discount will account for inflation’s impact on the cost basis of an asset. For instance, if a property purchased for A$1 million in 2027 is sold for A$1.5 million after 10 years, with an average inflation rate of 3%, the taxable gain will be reduced by approximately A$344,000 attributed to inflation.
“The challenge for cryptocurrency is that the CGT changes, indexation really helps slower growing assets not fast ones,” explained Andrea Yuen, CEO of Swyftx.
Consider a scenario where Bitcoin is bought for A$10,000 and sold a decade later for A$100,000. The inflation discount would amount to roughly A$3,439. Under the previous system, tax would be levied on A$45,000 of gains. However, under the new regime, tax will be applied to A$86,561 of gains.
Chris Bryki, an analyst at Stockspot, analyzed the impact of the new rules across ten different asset classes. He noted in The Australian newspaper that “Crypto sits at the bottom because almost its entire return comes from capital growth.”
Strategies for Navigating the Changes
Here are several strategies available to crypto holders to manage the upcoming tax adjustments, ranging from minimal effort to significant life changes.
Any gains accrued before July 1, 2027, will be taxed under the existing 50% discount. Therefore, a primary strategy is to aim for substantial portfolio growth before this deadline. It is crucial to meticulously record the value of all crypto assets on that date, as any appreciation beyond that point will be subject to the higher tax rate.
Ben Simpson, founder of the crypto advisory service Collective Shift, expressed optimism about Bitcoin’s performance since mid-year, suggesting potential for further gains before July, despite a challenging macroeconomic environment. However, Simpson, who emphasizes he is not a financial advisor, cautioned, “I probably wouldn’t be betting the farm on the fact that we’re gonna have a huge bull run.”
Yuen echoed this sentiment, stating, “A strategy isn’t a strategy if you’re just sort of hoping.”
Political Uncertainty and the Hope for Reversal
Both the official opposition, The Coalition, and the insurgent One Nation party have pledged to repeal the tax changes. Crypto voters prioritizing this issue could influence the election outcome. However, the ruling Australian Labor Party (ALP) holds a significant majority in the House of Representatives, making a change in government a formidable challenge. If a new government is formed and the legislation successfully passes the Senate, the changes could theoretically be reversed before tax filings are due in July 2028. Nevertheless, it is more probable that any systemic changes would occur after this date. Adrian Forza, director of Crypto Tax Australia, noted that this scenario would complicate the calculation of gains significantly.
Self-Managed Super Funds (SMSFs)
Australian retirement funds, known as superannuation funds, allow individuals over 60 to access their investments tax-free, even as they continue to grow. Currently, retail super funds do not permit clients to invest in cryptocurrency. Consequently, to shield crypto gains through this method, establishing an SMSF is necessary. Approximately one-third of Simpson’s high-net-worth clients utilize SMSFs for crypto investments. “Buying Bitcoin and accumulating it there is a super solid idea,” he remarked, though he advised caution regarding altcoins. “You’re risking your retirement, which is an ultra long-term hold, on short-term altcoins,” he warned.
While Australian super fund AMP has invested in Bitcoin, it does not allow its clients to do so.
A significant drawback of SMSFs, according to the 27-year-old founder, is that younger crypto investors cannot access the funds for decades. This makes the strategy more suitable for wealthier investors aged over 50, who have a shorter waiting period.
The government has also increased the administrative burden of running an SMSF, with extensive compliance requirements, audits, and unavoidable fees that can be prohibitive for smaller balances. Annual costs typically range from A$2,000 to A$4,000, though online providers like Stake can reduce these to around A$1,330 for Bitcoin or Ether ETFs.
Furthermore, crypto assets must be sold and taxed before they can be repurchased within an SMSF. Annual contribution limits also apply, though Forza suggested that with some planning, nearly A$400,000 could be contributed.
Borrowing Against Crypto Assets
A strategy employed by some billionaires to defer tax payments involves borrowing against assets, as loan repayments can be less costly than selling and paying tax. Bitcoin holders can now access lenders such as BlockEarner, Veild, and Swyftx, enabling them to borrow against their Bitcoin holdings as collateral.
“We like to bring that strategy to the masses, not just to billionaires,” Yuen commented.
However, this approach carries risks, particularly for those without substantial financial reserves. Borrowers face high interest rates, relatively short loan terms (typically 12 months), and the potential loss of their Bitcoin if market conditions turn unfavorable. Borrowing is also limited to a percentage of the asset’s value; Swyftx, for example, has a loan-to-value ratio of around 40%. “If your collateral drops below a certain amount, there will be a margin call,” Yuen explained. “I would say it’s a bet on a price going up. I think you have to have a view that crypto will go up — or at least not go down so that you get margin-called… Otherwise, a crypto-backed loan wouldn’t make sense for you.”
Simpson does not recommend this strategy due to its inherent risks but acknowledges it can be beneficial for some. For example, borrowing at 10% interest while Bitcoin compounds at 33% annually (a historical average) could yield a better outcome than paying CGT. However, he cautions that this is a leveraged bet best suited for sophisticated investors.
Given Bitcoin’s 28% decline over the past year, individuals who borrowed a year ago would likely have faced margin calls, potential liquidation, and interest costs.
Borrowing against Bitcoin for a home deposit has emerged as a more popular strategy.
Forza warns that borrowing crypto can, in certain circumstances, constitute a CGT event, particularly within decentralized finance (DeFi). Depositing ETH to platforms like Aave results in an automatic swap to WETH, which is a taxable event, and withdrawing the ETH incurs another.
Borrowing from centralized lenders like BlockEarner or Swyftx currently falls into a grey area, with the Australian Taxation Office (ATO) yet to clarify its tax implications. “If you’re talking about [borrowing] ten grand fine. But if you’ve got three to five Bitcoin, I wouldn’t risk it because if it goes against you then you’re going to be paying tax.” Veild is reportedly the only Australian entity with a private ruling confirming its product is not a taxable event. Swyftx confirmed it does not possess such a ruling and advised clients to seek tax advice, while BlockEarner did not respond to a request for comment.
The second part of this special report on Australian CGT, to be published later this week, will explore four additional strategies for minimizing crypto tax liabilities, including company formation and expatriation.
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