5 min read

Tax treatment of trader vs investor

Written by
Sebastian Garcia
Published on
April 11, 2024

For a trader, cryptocurrencies are considered trading stock.

For an investor, cryptocurrencies are an asset subject to CGT upon sale.

How to determine if you are a "trader" or an investor for tax purposes

There is no fixed list of rules to determine who is and who is not a trader. To accurately determine if you are a trader, you must consider your intention in undertaking the activity and the objective facts of the activity. Even if you have determined that you are a trader, the ATO may not agree with your interpretation.

In our experience, the ATO takes into account a set of over 20 indicators to determine whether a person is a trader or an investor for tax purposes.

The three main indicators to determine if you are a crypto trader are:

1. Repetition, volume, and regularity

This indicator considers the frequency of transactions, the volume of purchases and sales, the regularity of transactions, and the scale of trading activity. Factors indicating trading activity include:

- Placing trades regularly and consistently.

- Managing trading positions regularly.

- Investing significant capital or obtaining a business loan for cryptocurrency trading activity.

- Trading with comparatively large amounts.

- Dedicating the equivalent of a workweek to activities related to crypto trading.

At the more extreme end of a trader, someone would be operating an automated trading bot and taking advantage of small price movements in the market by placing thousands of trades per day.

Unlike a trader, an investor is someone who manages their portfolio a few times a year and conducts a small number of trades.

2. Sophistication of cryptocurrency operations

This indicator determines whether trading activity is conducted as a genuine business operation. Factors indicating more sophisticated trading activity include when the trader has:

- Relevant qualifications and knowledge of the industry.

- An ABN (Australian Business Number).

Do I have to have an ABN to be a crypto trader?

No, it is not necessary to have an ABN to be a cryptocurrency trader. However, having an ABN is a factor considered when determining if you are a trader for tax purposes.

- Registered a business name.

- A physical business location.

- Charting software and equipment.

- A complete trading system used full-time for trading.

- Training and development of financial and data skills.

- A business plan that is periodically reviewed.

Unlike a trader, an investor is usually employed full-time in an unrelated field and conducts trades with little research.

3. Trader documentation

Trader documentation typically includes:

- Business plan.

- Trading strategy.

- Trading journal.

- Financial statements.

- Detailed records.

- Tax invoices for expenses.

These documents are used to justify the business activities being conducted.

Although a crypto investor may have an investment strategy, they do not have a business plan to generate profits. An investor buys crypto for long-term growth and/or income returns.

Crypto traders have a documented trading strategy, as well as a documented business plan. They prepare annual financial statements and periodic reports to assess their performance.

Still have questions?

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