In the first part of our special on avoiding Australia’s massive crypto capital gains tax hike next July, we looked at borrowing against your Bitcoin or setting up a self-managed super fund (SMSF), one of four ways to mitigate the impact of the taxes.
While an SMSF offers Australians the greatest tax benefits, it is only suitable for older investors or those willing to lock up their cryptocurrencies for decades until they retire. For younger investors, moving abroad could reduce your future crypto tax bills to 0% – but there are also less drastic ways to save on taxes.
5. Leave Australia and move to a country with a 0% capital gains tax
Australia’s upcoming tax changes have already inspired the crypto king Fred SchebestaFounder of Finder.comto become a tax refugee in Singapore.
Starting in July, the top rate for real, long-term crypto profits will rise to 47%, net of inflation effects on the cost basis.
For aspiring individual crypto investors, the “nuclear option” of leaving the country to avoid handing over nearly half of their profits to the government is looking increasingly attractive.
Many one of the world’s leading crypto hubs – Singapore, Portugal, Malta, United Arab Emirates and Hong Kong – are offering 0% capital gains tax on long-term crypto profits to attract wealthy investors.
Also read: These six global crypto hubs all have one thing in common:Should you leave Australia to avoid paying 47% tax on crypto profits?
Ben Simpson, founder of crypto advisory service Collective Shift, says some of his members have already pulled the trigger.
“Yeah, we had a number of people who kind of packed up and basically said, ‘Shit. I’m going to the Bahamas or whatever,'” he says.
Andrea Yuen, CEO of Sywftx, says she is aware of the tax benefits of living outside Australia.
“I lived in Singapore for 30 years. I miss the capital gains tax exemption,” she says. But she didn’t move there for tax reasons and warns that uprooting your life to avoid a bit of taxes is a pretty drastic step.
“I would never say that we should structure our lives just to think about tax outcomes,” she says. “There are many other wonderful reasons why I returned to Australia and continued to live in Australia.”
“I think if you’re moving a country just based on whether you know your cryptocurrency will be taxed, you probably need to think a little more carefully.”
Simpson thought about the idea since he’s already spending six months in America looking after Collective Shift US, but one look at the rules put him off.
“You really have to cut pretty much all ties with Australia. So if you really like going away and don’t want to come back for most of the year, cut your health insurance and cut all ties with Australia again, then that’s one strategy.”
“Bitcoin Jesus” Roger Ver gave up his US residency in 2014 and was arrested and charged ten years later for failing to correctly declare the value of his crypto holdings and paying exit taxes. He had to pay almost $50 million to settle the case.
Likewise, Australians leaving the country face a hefty exit tax upon departure, which may require selling a fair portion of your stack.
“They tax you when you exit. If you have a lot of profits or profits that you’re sitting on, they’ll catch you when you leave,” says Adrian Forza, director of Crypto Tax Australia. “Maybe it will get bigger in the future, but it’s still hard to sell everything and walk away.”
Forza explains that you also have the option to pay Australian taxes later, but up to the full value of the gain after you sell the asset. So if you expect Bitcoin to rise, it’s best to pay the exit tax now.
Related: Australia publishes draft legislation to adopt OECD crypto tax reporting framework
6. Start a business to benefit from the corporate tax rate
Simpson is only 27 years old and the prospect of locking up his crypto portfolio for forty years is hardly appealing. Instead, he trades and holds cryptocurrencies through a company to benefit from the 25% corporate tax rate.
Running a sole proprietorship is easier than you might think, but the effort isn’t worth it unless you have a reasonable amount of capital and plan to do a lot of business. It requires registering the business with ASIC and paying an annual fee, paying an accountant to prepare financial statements and/or an annual company tax return, and fiddling around with payroll software and pension contributions if you plan to pay yourself an income. You can pay yourself a dividend any time you need some money.
“The corporate structure is good if you want to limit capital gains tax to the corporate tax rate,” he says, but points out that there is a big catch: when you withdraw funds from the company, you have to pay the difference between the corporate tax rate of 25% and the personal tax rate.
“You still have to pay your marginal tax rate. If you have the highest tax rate, about 47%, he says.”
You may be wondering: if you have to pay your income tax rate anyway, which will be the same as the CGT rate from July, what advantage do you get from paying a few thousand dollars and having to fill out a lot of paperwork to run a business?
Simpson explains that the main advantage is that as you build your crypto portfolio by trading in and exchanging different coins, you only pay the corporate rate of 25% on each sale. This means you can pay up to 22% less than CGT every time you exit a position, leading to even greater savings over time.
“Instead of paying 47% because you just took the profits, the CGT amount is just 25% – the company tax rate. So when you put the money back to work you have more capital to play with.”
However, if you do not trade sufficiently, you may be subject to a 30% tax.
According to Forza, the benefits are greater for those with higher incomes.
“If you’re an individual, then you have a business and, you know, earning 150 grand a year, er, or over 200, then a business would definitely be the way to go, especially now that the CGT discount has gone out the window.”
However, it is not a particularly useful structure if you only plan to hold onto your Bitcoin. There are some potential benefits, but probably not enough of them to be worth the effort.
7. Simply avoid cryptocurrencies completely to avoid high CGT rates
The 50% CGT discount has been replaced by an indexation discount, which takes into account how much inflation affects how much you originally paid for an asset.
This means investors who buy and hold dividend stocks or index funds for a longer period will receive a larger CGT discount. So should you forgo crypto and buy a bunch of ETFs instead to pay less taxes?
The short answer is no: the new CGT “discount” is largely an illusion as it simply measures your actual profit after inflation.
According to Simpson, crypto has been hit hard by the CGT changes but still offers the best risk-reward ratio.
“For us at Bitcoin, the growth… far outweighs the tax considerations. In my opinion. If you have the right portfolio, that can give you the right upside.”
History shows that despite the volatility and years of bear markets, the return on investing in Bitcoin would still be higher than ETF investors over time, even if more taxes are paid. However, investing further down the risk curve with altcoins can either pay off handsomely or end in complete disaster.
JPMorgan expects Bitcoin to grow by an average of 10% in the coming years. (Source: JPMorgan/Bitcoin Archive)
Simpson says he convinced his younger sister, a low-income basketball player, to invest in Bitcoin two years ago instead of putting money in a savings account.
“She’s up about 40% or 50% in her portfolio and thinks, ‘Wow, this is going to get me so much further on a day buying a house than me sitting in cash and losing 10% (due to inflation over time),” he says.
“That’s why I think it makes so much sense to accumulate Bitcoin. And the tax considerations, I don’t think, are really relevant for most people.”
Yuen says crypto is one of the few asset classes that offers investors the chance to achieve double-digit returns or potentially double their money in just a few months. Even after paying the new taxes, crypto investors will still come out ahead with such returns.
“My father always told me it was a good thing, if you made a profit you should be happy to pay some taxes on it.”
Well, maybe I’m not happy about it, but you’ll still make money.
Also read: How Australian Bitcoiners Can Avoid the Shocking CGT Surge in 2027, Part 1
