Some may still be trying to work out what NFT’s are ? NFTs present their own set of tax issues and complexities to navigate.
This article is intended to provide a high-level overview of some of the tax considerations to be aware of when transacting with NFTs. This is general advice only and does not take into account individual circumstances, so reach out to our team for further information.
What are NFTs?
An NFT is a unit of data stored on a digital ledger. Each NFT is unique and non-interchangeable and is often associated with representing an ownership interest in a digital asset such as a video, photo or audio file.
Similar to cryptocurrency (which also uses the blockchain), NFTs can be created as well as traded. They can also have a commission model whereby any subsequent sales of the NFT provide their previous owners with a commission on those sales.
Buying and selling NFTs
The buying and selling of NFTs by an Australian taxpayer will generally be taxed:
Under the Capital Gains Tax (CGT) regime, or
On revenue account as trading stock.
For example, if you purchase an NFT as part of your overall investment portfolio (which may also include shares, property and other investments) then the subsequent sale of that NFT will likely be on capital account. So, if you hold that NFT for at least 12 months then the 50% general CGT discount may also be available to make only half the gain subject to tax.
For completeness, we note that where founders contribute NFTs to a start-up, that contribution may be treated as a disposal for CGT purposes.
If you are buying and selling large volumes of NFTs, that could be an indicator you are carrying on a business of NFT trading. Where that is the case then any gains on sale of the NFTs would be on revenue account, meaning the general CGT discount is not available. Note that there is no black-and-white definition of whether a taxpayer is carrying on a business. Instead, various factors are considered such as the volume of trading, amount of capital invested, business systems and procedures in place and relevant experience or qualifications of the taxpayer.
Creating NFTs
For individuals or businesses creating NFTs, any proceeds from sale of those NFTs will be ordinary income (i.e. not capital), as will any commissions received from subsequent sales of the NFTs to new owners.
Tax residency and NFTs
Where an individual ceases being an Australian tax resident, then for tax purposes a ‘deemed disposal’ occurs at that date whereby the taxpayer is generally deemed to have sold their CGT assets (including NFTs) for their market value at that date.
However, taxpayers do have the choice to defer the disposal date for tax purposes until the date the NFTs are actually sold, with tax calculated on the gain made by the taxpayer at that time.
Accordingly, individual taxpayers intending to depart Australia should carefully consider whether it may be more prudent to:
pay the tax on a deemed disposal of NFTs on the date they depart Australia (which may not be ideal from a cashflow perspective), or
defer the tax until the NFTs are actually sold at a future date (where the value of the NFTs may be significantly higher, resulting in a larger Australian tax liability).
GST on NFTs
NFTs are not considered digital currency for GST purposes, so the ordinary GST rules apply. This means that if you are registered for GST and sell an NFT, then:
Sales to Australian buyers may attract GST, and
Sales to overseas buyers may be GST-free.
What next?
Given NFTs provide their holders with various rights, it’s not possible to cover all the tax implications of transacting with NFTs. For example:
Stamp duty and land tax may apply if the NFTs contain rights to real property
The “personal use asset” provisions may apply if the NFTs contain rights to boats
The “collectables” provisions may apply if the NFTs have rights to jewellery, artwork or antiques.
NFTs are constantly evolving and so too is the guidance on the associated tax issues. In order to determine the correct tax treatment of transacting with NFTs, a detailed review of their underlying rights will be crucial, so please contact us if you would like guidance in this complex area.
This year has seen the ATO crack down on individuals who have been trading in cryptocurrencies, such as bitcoin. This is a reminder for those dealing in such transactions to be well aware of the taxation obligations that come about with any resulting financial gains and losses. It is imperative to ensure accurate and complete cryptocurrency tax reporting.
How the ATO considers Cryptocurrency
Cryptocurrencies are considered by the ATO to be a form of property and are therefore a CGT (capital gains tax) asset for tax purposes.
As is the case with any asset that is subject to capital gains tax, it is necessary to maintain detailed records of transactions, including receipts of purchase or transfer, exchange records, digital wallet records and keys, as well as the value of the cryptocurrency in Australian dollars at the time of the transaction.
Transactions with Cryptocurrency during a CGT Event
Typically, a CGT event will occur when a cryptocurrency is sold, gifted, traded, converted to a fiat currency (such as Australian dollars) or used to obtain goods or services. Given the number of cryptocurrency transactions subject to tax, it is a danger that some of these could unwittingly slip through the cracks, so tax implications must be kept in mind whenever transacting with cryptocurrency for any purpose.
Conversely, it is also important to consider whether the cryptocurrency has been purchased for personal use (as opposed to any profit-making endeavour), as this is will exempt it from capital gains tax.
An exception arises to the treatment of cryptocurrency as a CGT asset when it is held as trading stock, or is used for business transactions. In these cases, it is considered to be held on revenue account, and its value in Australian dollars will be included as part of an entity’s ordinary income. That means that either normal personal tax rates will apply, or normal business tax rates will apply.
Tracking Cryptocurrency Transactions
Record keeping for cryptocurrency transactions may appear to be burdensome and unclear at times but there are a number of resources available to assist us, including official online exchanges which offer reliable Australian dollar values of the cryptocurrency at the time of transaction.
Individuals who have traded cryptocurrencies of any amount should ideally have a system in place to track these, as the ATO has shown that it will not overlook even the most seemingly small or insignificant transactions.
Makari and Co can assist clients who trade or invest in cryptocurrencies as part of their broader investment activities.
WRITTEN BY BAKOUS MAKARI
Please Note
While details contained in this article are accurate at the time of publication, they may be subject to changes in statutory and case law as well as Government policy, rulings and interpretation updates. Any opinions expressed are those of the writer and may not be representative of the Makari and Co firm or applicable under different circumstances. Any advice contained herein is generic in nature only and cannot be relied on for your personal situation. As such we cannot be held responsible for any damages that arise from applying generic information to your own situation. You should always seek professional advice tailored to your unique situation, taking into account the most recent legal changes and understandings at the relevant time.
[vc_row][vc_column][vc_column_text]New legislation was passed that changes how directors are required to identify themselves. This change was the first step made in an effort to modernise business registrations. It means that all directors are now required to obtain a unique Director Identification Number (Director ID).
What is a Director ID?
A Director ID is a unique 15 digit number that all directors will soon be required to have. This identification number will help ensure that an individual can be correctly identified across all their roles as a director. The unique Director ID will stay with an individual regardless of name changes, location, or how many companies they become a director of.
Why is the Director ID being introduced
The Director ID is being introduced to mitigate the risk of fraudulent director nominations. It also increases the ability to trace relationships with directors and their companies. This is part of a broader plan to improve data integrity and security around company registrations and regulation.
What the Director ID means for you
If you are already a director it means that you will need to apply for a Director ID within the next year. If you are planning to become a director you will need to apply for a Director ID as part of your appointment as a director.
New companies and new director appointments
All individuals with new director appointments will need to apply for a Director ID prior to their appointment as a director. Anyone who is intending to become a director must apply for a Director ID.
Existing company directors
In preparation for the application it is important to ensure that all existing company details relevant to your position as a director are up to date. If any personal details need to be corrected then Form 492 should be lodged to request corrections. This includes correcting errors in names, shortened forms of names, inaccurate dates or place of birth, or other information that may not have been submitted accurately with your initial nomination.
How do I apply for a Director ID?
Directors can only apply for a Director ID themselves. This is not something you can appoint an agent or representative to do on your behalf. You can make an application for your Director ID through one of the following methods:
Apply through the myGovID app (preferred method). Please note that myGovID is different to myGov.
Providing proof of identification documents over the phone.
Completing a paper application and mailing in the form.
To complete the digital application you will need to install the myGovID app on a smart device. Note that myGovID is a separate app to your personal myGov app that you use to manage your personal tax and other government related matters. You will then need two forms of identification, such as your driver’s license, Australian passport, birth certificate, visa, citizenship certificate, ImmiCard or Medicare card.
For more detailed information on how to set up your myGovID please see here:
If you do not have relevant Australian identification documents (for example, due to being a non-resident) or do not have an email address, then you will need to use the alternative forms of application.
The link to access the paper application form is here:
This link will also give you more information about the proof of identity documents that you are required to provide.
What happens if I don’t apply for a Director ID?
If you are required to have a Director ID and fail to apply for one within the required timeframe then you may be liable for penalties. Failing to apply for a Director ID when required can leave you exposed to both civil and criminal penalties.
Australian Business Registry Services
The requirement for all directors to obtain a Director ID is the first step in modernising and streamlining Australian business registry services.
WRITTEN BY BAKOUS MAKARI
Please Note
While details contained in this article are accurate at the time of publication, they may be subject to changes in statutory and case law as well as Government policy, rulings and interpretation updates. Any opinions expressed are those of the writer and may not be representative of the Makari and Co firm or applicable under different circumstances. Any advice contained herein is generic in nature only and cannot be relied on for your personal situation. As such we cannot be held responsible for any damages that arise from applying generic information to your own situation. You should always seek professional advice tailored to your unique situation, taking into account the most recent legal changes and understandings at the relevant time.[/vc_column_text][/vc_column][/vc_row]
With more people remarrying, it’s critical to prepare for the distribution of your wealth on your passing.
While you are alive, the estate planning process allows you to manage and preserve your wealth for those you will one day leave behind.
At death, your estate plan allows you to conserve and control its distribution according to your desires, goals, and objectives after you have gone.
It’s vitally important that everyone creates an estate plan, so here are five important documents that you should consider regardless of your age, health, or wealth.
1. Prepare a will
A will distributes property owned in your own name (estate assets) as you wish after your death.
But, without a will, disbursements are made according to state law, which might not align with your priorities and legal disputes may arise.
A will also name an executor to manage and settle your estate as well as a legal guardian for any dependents.
Since a will is a legal document, it’s crucial that it be well written and articulated as well as witnessed so that it is properly executed under your state’s legislation.
There are various types of wills, including Testamentary Trusts, which can better safeguard assets from family splits and improve the taxation on income or capital gains when young children are involved.
2. Non-estate distributions
Assets not owned in your own name are not distributable direct from a will, which are typically superannuation and assets held in a trust.
Superannuation assets need either a Binding Death Nomination or Superannuation Will so as to comply with the requirements of the superannuation deed.
You do not own the trust assets and so control needs to be passed on, which will be via a Memorandum of Wishes nominating a new appointor.
The shares in a company or the trustee company of the trust also form part of the estate.
3. Enduring Power of Attorney (EPOA)
An Enduring Power of Attorney authorises someone to act on your behalf should you become physically or mentally incompetent to handle financial matters.
The person you designate as your EPOA can pay bills, file taxes, direct investments, etc. on your behalf.
The document can also give authority to a specific decision and is governed by the relevant State and Territory legislation.
4. Medical directives
Medical directives allow you to specify the medical treatments you do and do not want in the event you can’t express your wishes and it can also appoint someone to make these decisions for you.
But without this document, medical care providers must prolong your life using artificial means, if necessary.
Medical directives are also referred to as “living wills”.
In addition, medical directives can be combined with healthcare Powers of Attorney, which name the individual or individuals that you would like to make your healthcare decisions if you are incapacitated, including the standard of care you desire and end-of-life decisions.
Medical directives are governed by the relevant State and Territory legislation.
5. Personal details
This is a non-legal document that may accompany your will to express personal thoughts and directions.
Unlike a will, this remains private and its directions are not binding but could be very useful to implement your wishes.
Typically, we see banking details, passwords, log-in details, insurance policies, etc. only known by the deceased, which ensures that surviving partners and/or executors have access to this vital information easily.
No one likes to think about their own death, but documents such as those identified above can make the job of the executor more efficient and therefore less costly to your estate.
The desires of the deceased can also be completed more quickly and with less disruption in what is already a time of grieving and stress.
On the topic of executor, it is advisable to nominate at least a second back-up, as the nominated person, for whatever reason, may not want to take on the responsibility at the time.
It is also advisable to discuss with your estate lawyer the types of issues that can arise by a disgruntled person who believes they have not been treated fairly in your will.
You can then implement a strategy to limit any disruptive behavior.
Death is a fact of life, but far too many people don’t prepare for it financially.
We all spend lifetime building assets, so it makes sense that after we’ve gone that our wishes are known and our wealth is passed on to the people who meant the most to us when we were alive.
What about you?
If you’re a business owner, a professional, or an established property investor why not have a chat with me about your personal circumstances.
Having a Strategic Wealth Plan means you’re more likely to achieve the financial freedom you deserve desire because we’ll help you:
Define your personal, financial, and business goals;
See whether your goals are realistic, especially for your timeline;
Measure your progress towards your goals – whether your investments or business is working for you, or if you’re working for it;
Find ways to maximise your wealth creation;
Identify risks you hadn’t thought of.
And the real benefit is you’ll be able to grow your wealth faster and more safely than the average investor and leave a legacy.
Disclaimer: This article is general information only and is intended as educational material. Makari and Co nor its associated or related entities, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.