Australia’s Looming Crypto Tax Hike: Navigating the July 2027 Capital Gains Tax Surge

In the continuing exploration of strategies to navigate Australia’s significant increase in capital gains taxes (CGT) on cryptocurrency, set to take effect in July of next year, this article delves into further options beyond those presented in Part 1. While borrowing against Bitcoin or establishing a Self-Managed Super Fund (SMSF) were discussed previously, this segment focuses on more drastic measures, including international relocation and corporate structuring, as well as a re-evaluation of holding crypto at all.

5. Emigrating to a Nation with Zero Capital Gains Tax

The impending changes to Australia’s tax legislation have already prompted notable figures in the crypto space to consider or enact a departure from the country. Fred Schebesta, the founder of Finder.com, has reportedly become a tax exile in Singapore. From July, the top rate on long-term crypto gains in Australia is projected to reach 47%, before accounting for the impact of inflation on the cost basis. For ambitious, single crypto investors, the "nuclear option" of relocating to a jurisdiction with a more favorable tax regime, thereby avoiding surrendering nearly half of their gains to the government, may become an increasingly appealing prospect.

Several global hubs renowned for their cryptocurrency ecosystems, including Singapore, Portugal, Malta, the United Arab Emirates, and Hong Kong, offer 0% capital gains tax on long-term crypto holdings. These nations actively seek to attract wealthy investors by providing such tax incentives. Ben Simpson, founder of the crypto advisory service Collective Shift, has observed this trend, stating that some of his clients have already made the decision to move. "Yeah, we’ve had a number of people that have sort of packed up and gone basically, ‘f— this.’ I’m off to the Bahamas or whatnot," he reported.

Andrea Yuen, CEO of Swyftx, acknowledged the significant tax advantages of residing outside Australia, having lived in Singapore for 30 years and missing its absence of capital gains tax. However, she cautioned against making such a life-altering decision solely for tax purposes, emphasizing that uprooting one’s life to avoid a portion of taxes is a drastic step. "I would never say that we should structure our lives only to think about tax outcomes," Yuen stated. "There are many other wonderful reasons why I’ve come back to Australia and continued to live in Australia." She further advised, "I think if you’re moving countries solely based on a decision about whether you know your crypto is going to get taxed, then you probably need to think a little bit harder."

Simpson himself has contemplated international relocation, given his existing commitments in the United States for Collective Shift US. However, upon investigating the requirements, he found them to be prohibitive. "You really have to cut pretty much all ties to Australia. So if you are genuinely happy to leave and don’t want to come back for the majority of the year, and cut your healthcare and cut all your ties back to Australia, then that is a strategy," he explained.

The case of "Bitcoin Jesus" Roger Ver serves as a cautionary tale. Ver renounced his US residency in 2014, only to be arrested and charged ten years later for failing to properly report his crypto holdings and pay exit taxes. He ultimately paid nearly $50 million to resolve the case. Similarly, Australians contemplating leaving the country may face a substantial exit tax upon departure, potentially necessitating the sale of a significant portion of their crypto assets. Adrian Forza, director of Crypto Tax Australia, noted, "They tax you on the way out. If you’ve got a lot of gains or profits you’re sitting on, they’ll catch you when you leave." He added, "Arguably it’d be bigger in the future, but it’s still difficult to stomach selling off everything to leave." Forza also clarified that while it is possible to defer Australian taxes until the asset is sold, and pay on the full value of the gain at that time, if an investor anticipates substantial future growth, paying the exit tax immediately might be more advantageous.

6. Establishing a Company to Leverage the Corporate Tax Rate

For younger investors like Ben Simpson, who is 27, the prospect of locking up his crypto for decades is unappealing. Instead, he utilizes a company structure for his crypto trading and holdings, benefiting from the lower 25% corporate tax rate. While setting up a single-person company is achievable, it is only advisable for individuals with a considerable capital base and an intention for active trading, due to administrative requirements such as ASIC registration, annual fees, accounting costs, and potential payroll software and superannuation contributions if drawing an income. Funds can be withdrawn from the company as dividends at any time.

Simpson highlighted that the company structure is beneficial for capping capital gains tax at the corporate rate. However, a significant caveat exists: when funds are withdrawn from the company, the difference between the 25% corporate tax rate and the individual’s marginal income tax rate must be paid. "You still need to pay your marginal income tax rates. If you’re on the top tax rate, like 47%," he explained. This raises the question of the benefit of incurring company setup and maintenance costs if the full income tax rate must eventually be paid.

The primary advantage, Simpson elaborated, lies in the ability to pay only the 25% company rate on each sale while actively trading and reallocating capital between different cryptocurrencies. This translates to paying up to 22% less tax on each profitable trade compared to individual CGT, leading to substantial cumulative savings. "Instead of paying 47% because you’ve just taken the profits… then the CGT amount is only 25% – the company tax rate. So when you put that money back in, you’ve got more capital to play with," he stated. However, if trading volume is insufficient, the effective tax rate could be as high as 30%.

Forza suggested that the advantages of a corporate structure are more pronounced for individuals with higher incomes. "If you’re a single person, then you’ve got a company, and you’re earning, you know, 150 grand a year, um, or over 200, then yeah, definitely a company would be the way to go, especially now that the CGT discount has gone out the window." For those who primarily intend to hold Bitcoin without active trading, a company structure may not offer sufficient benefits to justify the administrative burden.

7. Complete Withdrawal from Crypto to Avoid High CGT Rates

The previous 50% CGT discount has been replaced by an indexation discount, which accounts for inflation’s impact on an asset’s original cost basis. While this may offer a larger discount for long-term holders of dividend stocks or index funds, the benefit for crypto investors in Australia is less significant. The new CGT "discount" essentially reflects the real gain after inflation, and as Simpson pointed out, crypto has been disproportionately affected by these CGT changes.

Despite the tax implications, Simpson maintains that crypto still presents a compelling risk-reward opportunity. "For us in Bitcoin, the growth … heavily outweighs the tax considerations. In my point of view. If you’ve got the right portfolio, that can give you the right upside," he asserted. Historical performance suggests that even with volatility and extended bear markets, Bitcoin’s long-term returns have historically surpassed those of ETF investors, even after accounting for higher taxes. Investing in altcoins, however, carries a higher degree of risk, with the potential for substantial gains or complete loss.

JPMorgan’s projections estimate an average annual compound growth rate of 10% for Bitcoin in the coming years. Simpson cited his younger sister, a basketball player with a modest income, whom he advised to invest in Bitcoin two years ago instead of a savings account. "She’s up like 40% or 50% in her portfolio and she’s like, ‘wow, this is going to get me so much further towards buying a house one day than sitting in cash and losing 10% [to inflation over time],’" he recounted. This illustrates the belief that accumulating Bitcoin can still be a more effective wealth-building strategy than traditional savings, even with the new tax regime.

Yuen echoed this sentiment, noting that crypto is one of the few asset classes offering the potential for significant returns within short timeframes. Even after paying the new taxes, investors achieving such gains would still be in a favorable position. She quoted her father: "It’s a good thing, if you’ve made profits, you should be happy to pay some tax on it." While happiness may be subjective, the underlying principle suggests that substantial profits from crypto investments will likely still result in a net positive outcome for investors, even after tax.