Some companies are beginning to offer their employees the option to receive some of their pay in cryptocurrencies like Bitcoin, and there are even some dedicated crypto payroll services starting up. With more than 600,000 Aussies investing in crypto assets in recent years, according to the ATO, we consider:
All that glitters isn’t gold, or so the saying goes. Some investors in crypto stocks might agree. After all, assets like Bitcoin, Ethereum, Tether, Litecoin or Dogecoin exist on a decentralised, digital ledger. They are intangible, but this doesn’t mean some savvy sellers haven’t already realised eye-watering profits (or depressing losses). With today’s modern fiat currencies, such as the US dollar and the Australian dollar, not being backed by gold or silver anymore, and the Central American nation of El Salvador recently becoming the first country to legalise Bitcoin as legal tender, could we be on the cusp of a new major monetary shift towards digital cash? And how is the Australian Government monitoring what you might need to pay for tax purposes on your crypto earnings?
What companies are paying their employees in cryptocurrencies?
Melbourne-based crypto exchange BTC Markets is letting its employees decide how much, if any, of their take-home, after-tax pay they’d like to receive in crypto, while a Brisbane-based Bitcoin bill payments company, Living Room of Satoshi, is offering its staff an option of being paid in crypto. Some other Australian fintech companies have set up similar initiatives.
Internationally, the first employee of the American crypto trading platform Coinbase was paid in Bitcoin for three years. To facilitate crypto salary payments, there are some companies, such as Bitwage and BitPay, that have launched Bitcoin payroll services. Some US, UK and European companies are able to use Bitwage to pay workers in bitcoin cash, while BitPay’s BitPay Send service uses the tagline “Pay out crypto to anyone, anywhere”.
Is getting paid in Bitcoin a good idea?
Whether or not getting paid in Bitcoin or another cryptocurrency is a good idea or not is a subjective question. Theoretically, risk and reward can go hand-in-hand when it comes to investments. A common belief is that with lower risk there can be a lower potential reward – “nothing ventured, nothing gained”, as some investors might say. This may be the view of many crypto investors or fans, including those who’ve chosen to, or would consider, receiving some or all of their salary in a crypto asset such as Bitcoin.
So, why might someone choose to be paid in Bitcoin or another cryptocurrency? A major possible benefit is the potential to be paid in an asset that offers (seemingly) giddy potential for future growth. Investment returns have been very high for some cryptocurrencies in recent history, and the market is anticipated to grow from $US1.6 billion in 2021 to $US2.2 billion by 2026, according to one recent report.
While there is potential for profit, crypto assets are highly volatile. At present, Elon Musk seemingly wields the power to send assets soaring or sinking with a sassy emoji, joke or meme. For an astute investor, this may be a major warning sign. While Musk has warned, “Cryptocurrency is promising, but please invest with caution!” his regular tweets about meme-inspired cryptocurrency Dogecoin have led to him being called the “Dogefather”. He also sent the price of Bitcoin tumbling in May, after tweeting that his company Tesla was “concerned about” the environmental impacts of Bitcoin mining.
Do you want Tesla to accept Doge?
— Elon Musk (@elonmusk) May 11, 2021
Back in Australia, the Digital Economy and Financial Services Minister, Jane Hume, has cautioned Australians against getting their salary in crypto, telling 2GB that with our broader employment and tax framework, cryptocurrencies would be treated as a fringe benefit when paid as salary or wages, meaning employers would be taxed at 47%.
“How employees want to be compensated is essentially a discussion between them and their employer,” she said, adding “it’s really not the best option for anybody that isn’t in the top income tax bracket”.
Some financial experts have been critical of cryptocurrencies too. Australia’s Barefoot Investor, Scott Pape, recently wrote of investing in Dogecoin: “Life is really hard when you believe you can make a quick buck from magical dog memes… there is no skill involved, and the odds are stacked against you.”
Mr Pape went on to explain that making real money involves having to sell, and that he felt, “every man and his dog” was planning to “sell out of Dogecoin right at the top”. Known as the ‘greater fool theory’, such a premise relates to the difficulty in deciding when to invest in or sell an asset for maximum profit, particularly without considering its valuation fundamentals or when these fundamentals are tricky to determine.
There are, of course, crypto success stories, such as a luxury US$22 million-plus Miami penthouse becoming the largest real estate purchase made with crypto to date. And prominent Australian financial journalist Alan Kohler recently charted the staggering 36,000-fold growth of Bitcoin since 2010, describing it as “no bubble” and arguing that cryptocurrency could be “a way to participate in the future”.
But there are also tales of investor misfortune. A recent video published by a group claiming to represent the hacker collective Anonymous criticised Elon Musk, for example, with a masked figure lamenting: “Millions of retail investors were really counting on their crypto gains to improve their lives. Of course, they took the risk upon themselves when they invested.”
What do I need to know about tax and cryptocurrencies?
The Australian Taxation Office (ATO) has released a fact sheet, Tax-smart tips for your cryptocurrency investment, with insights for Australian investors. It covers tips for Australian taxpayers about disposing of cryptocurrencies, calculating how much capital gains tax (CGT) they may need to pay, and the importance of keeping records.
For a cryptocurrency investment, the ATO explains that a capital gain or loss is the difference between your cost base and your capital proceeds. Your cost base is your “cost of ownership – including the purchase price of the coin plus certain other costs associated with acquiring, holding and disposing of it”. Your capital proceeds are “what you receive or the market value of what you receive) when you dispose of your cryptocurrency”.
The ATO’s Assistant Commissioner, Tim Loh, says it’s a myth for Australians to consider crypto as a currency, rather than an asset. According to Mr Loh, the ATO has a data-matching program which lets it ‘cross-match’ taxpayers’ accounts with cryptocurrency exchanges against their personal tax returns. An ATO spokesperson also recently told Canstar that CGT from cryptocurrency would be one of its key areas of focus this year.
If you have purchased crypto assets or been paid crypto as part of your job, you may want to consider seeking professional advice from a registered tax agent to support you in completing your Australian tax return. Director of Tax Communications at H&R Block, Mark Chapman, shared with Canstar that Australians who have done well with their investments in the past year – including shares, property and crypto assets like Bitcoin – face being audited and penalised if they get their returns wrong.
Depending on your investments, keep in mind too that CGT can also apply to disposing of non-fungible tokens (NFTs).
→ Related: Tax tips: what the ATO will be watching
How can I buy cryptocurrencies?
You can buy cryptocurrencies on a cryptocurrency exchange, and there are several to choose from in Australia. Different exchanges may allow you to trade different cryptocurrencies or charge different fees, so as with any financial product, it can be important to do your research before committing to one.
Canstar has related content available about how you can buy cryptocurrencies, such as assets like Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Ripple (XRP), Tether (USDT), Cardano (ADA), Litecoin (LTC) and Bitcoin Cash (BCH). You may be interested in reading our articles about:
Who can I contact for professional investment advice?
In Australia, an independent financial adviser or planner may be available to assist you if you are seeking professional investment advice. For more information about tax and cryptocurrencies, you can visit the ATO’s website. Accountants and registered tax agents differ, and you may like to seek professional taxation advice to support you in completing your tax return this year. You can find out more about what Australians want in a tax agent. You may also be interested in finding out more about capital gains tax, and discovering related articles in our Tax, Investor and Cryptocurrency Hubs.
Author disclosure: I am a writer, not a financial adviser. I don’t get paid in Bitcoin or own any cryptocurrency, even if I may follow Elon Musk on Twitter. If you are considering investing in cryptocurrencies, you may like to seek professional investment advice to support your decision-making. Keep in mind, too, that past performance is not a reliable indicator of future performance (regardless of who’s tweeting about it).
Main image source: MAHATHIR MOHD YASINn/Shutterstock.com