Australia's decision to remove the 50% capital gains tax (CGT) discount for investments in the government's May budget has shocked many cryptocurrency holders. Under the new system, the taxable portion of a gain will effectively double, with only a limited adjustment for inflation.

There are legal ways to reduce the amount of CGT payable, but taxpayers will need to prepare in advance. The rules do not take effect until July 1, 2027, giving holders a defined window to reorganize their affairs. Some Australian crypto holders are considering drastic steps. Finder founder Fred Schebesta, who has described the tax changes as a “killer blow,” is relocating to Singapore, where the capital gains tax rate is 0%.

Other options are less extreme and could include establishing a self-managed superannuation fund (SMSF), using a company to trade cryptocurrency at the company tax rate, or voting for a political party that has promised to reverse the changes.

Source: Yahoo Finance.

What will change on July 1, 2027?

Since 1999, Australian asset owners have generally paid tax on only half of a capital gain. From July 1, 2027, they will pay tax at their full income tax rate. That means a 30% CGT rate where income and gains fall between A$45,000 and A$135,000, 37% on the portion between A$135,000 and A$190,000, and 47% on amounts above that. All figures in this article are in Australian dollars.

Low-income earners who are not receiving welfare, including students and retirees, will also pay a minimum 30% CGT rate regardless of the size of their gain.

The only discount that will remain is intended to account for inflation's effect on an asset's cost basis. For example, if someone buys a house for $1 million in 2027 and sells it for $1.5 million after 10 years, with inflation at 3%, about $344,000 attributed to inflation would not be subject to tax.

“The challenge for cryptocurrency is that the CGT changes, indexation really helps slower growing assets not fast ones,” Andrea Yuen, CEO of Swyftx, said.

The difference is more pronounced for an asset such as Bitcoin. If an investor buys Bitcoin for $10,000 and sells it 10 years later for $100,000, the inflation adjustment would be only about $3,439. Under the previous system, the investor would pay tax on $45,000 of the gain. Under the new system, the taxable gain would be $86,561.

Stockspot analyst Chris Brycki compared the effect of the new rules across 10 asset classes. “Crypto sits at the bottom because almost its entire return comes from capital growth,” he wrote in The Australian newspaper. “An already speculative investment is about to become less rewarding after tax.” Brycki's post is available on X.

The following strategies range from making little or no change to an investor's arrangements to restructuring their finances or moving abroad.

1. Realize gains before July 2027

Gains made before July 1, 2027, will be taxed under the existing 50% discount system. One possible approach is therefore to realize gains before that date, although the value of a portfolio is dependent on market prices and cannot be controlled by the taxpayer.

Investors should accurately record the value of every crypto asset they hold on July 1, 2027. Any subsequent gain measured from that value will be subject to the higher rate.

Ben Simpson, founder of crypto advisory service Collective Shift, said Bitcoin's performance since the middle of the year, despite a challenging macroeconomic environment, could support further gains before July. Simpson emphasized that he is not a financial adviser, however, and said: “I probably wouldn't be betting the farm on the fact that we're gonna have a huge bull run.”

“I think the halving in May 2028 is where we'll see most of the returns. So I don't think it's going to work in investors' favor,” he added.

Yuen said prices are outside an investor's control. “A strategy isn't a strategy if you're just sort of hoping,” she said.

2. Support a party that promises to reverse the changes

Both the official opposition, The Coalition, and the insurgent opposition party One Nation have promised to reverse the CGT changes. Crypto voters who regard the issue as important could therefore support a change in government.

The ruling Australian Labor Party holds 94 of the 150 seats in the House of Representatives, making it difficult to dislodge from office. If the government changes and legislation reversing the measure passes the Senate in time, the changes could technically be repealed before taxpayers have to file returns for the period beginning July 1, 2028. For crypto holders, that political timeline could matter as much as the tax arithmetic itself.

A change could instead come after that date. Adrian Forza, director of Crypto Tax Australia, said that would complicate tax calculations.

“It would be a nightmare to do three calculations, but longer term, it'll be better for the public,” Forza said.

3. Move crypto into a self-managed superannuation fund

Australian retirement funds are known as superannuation funds. Once a person is over 60, they can access their investments tax-free, including any further growth. Retail superannuation funds do not allow clients to invest directly in crypto, so anyone seeking to use this structure would need to establish an SMSF.

About one-third of Simpson's high-net-worth clients invest in crypto through SMSFs. “Buying Bitcoin and accumulating it there is a super solid idea,” he said, while cautioning against holding large numbers of altcoins. “You're risking your retirement, which is an ultra long-term hold, on short-term altcoins,” he said.

Australian super fund AMP has invested in Bitcoin but does not allow its clients to do so.

The principal drawback for younger crypto investors is that their money could remain inaccessible for decades. Simpson, who is 27, said: “You can't touch it until you're in retirement, right? So you can't really utilize any of those gains until later in life.”

As a result, the approach is more suited to wealthier investors over 50 who have a shorter period to wait before retirement.

Running an SMSF also involves compliance paperwork, audits and unavoidable fees. Those costs can make the structure impractical for smaller balances. Annual costs typically range from $2,000 to $4,000, although online providers such as Stake can reduce total annual costs to about $1,330 if the investor buys only Bitcoin or Ether exchange-traded funds.

Investors must sell their existing crypto and pay any resulting tax before repurchasing it through an SMSF. Annual contribution limits also apply. Forza said it should be possible to contribute almost $400,000 with careful planning.

A detailed report on setting up a crypto SMSF was scheduled for December.

4. Borrow against Bitcoin

Some billionaires avoid selling assets by borrowing against them, because repaying a loan can be less expensive than paying tax on a sale. Bitcoin holders can use a similar approach through lenders including BlockEarner, Vield and Swyftx, which offer loans secured by BTC.

“We like to bring that strategy to the masses, not just to billionaires,” Yuen said.

The strategy carries substantial risks for borrowers without significant financial reserves. Interest rates can be high, loan terms are relatively short—typically 12 months—and a borrower can lose Bitcoin if the market moves against the position. Loans also do not generally cover the full value of the collateral. Swyftx's loan-to-value ratio is about 40%.

“If your collateral drops below a certain amount, there will be a margin call,” Yuen said. “I would say it's a bet on a price going up. I think you have to have a view that crypto will go up — or at least not go down so that you get margin-called... Otherwise, a crypto-backed loan wouldn't make sense for you.”

Simpson does not recommend the strategy because of the risks, although he said it could benefit some borrowers. If a borrower paid 10% interest and Bitcoin compounded at 33% a year, as it has done in the past, the borrower could end up in a better position than if they had sold Bitcoin and paid CGT.

He described the approach as a leveraged bet suited to sophisticated investors. “I wouldn't recommend it for someone that's highly exposed to crypto and doesn't have the capital behind them because it's a risky thing if you don't know what you're doing,” Simpson said.

Bitcoin was down 28% over the previous year, meaning anyone who borrowed against it a year earlier could have faced margin calls, possible liquidation and interest costs. Borrowing against Bitcoin to fund a house deposit had also become more popular.

Forza warned that borrowing crypto can itself trigger a CGT event in some circumstances, particularly in decentralized finance. If a user deposits ETH into Aave, it is automatically exchanged for WETH, which is a taxable event. Withdrawing the ETH creates another taxable event.

Borrowing from centralized lenders such as BlockEarner or Swyftx remains a grey area, and the Australian Taxation Office has not clarified whether it constitutes a taxable event. Any future ATO guidance on that question would be a significant development for holders weighing the strategy.

“If you're talking about [borrowing] ten grand fine. But if you've got three to five Bitcoin, I wouldn't risk it because if it goes against you then you're going to be paying tax,” Forza said.

“Vield is the only one in Australia that's got a private ruling that says their product is not a taxable event. No one else has got one,” he added.

Swyftx confirmed it does not have a private ruling and said clients should seek tax advice. BlockEarner did not respond to a request for comment.

How much of this planning ultimately proves necessary will depend on two unresolved questions: whether any repeal legislation can pass Parliament before the first returns under the new system fall due, and whether the ATO clarifies the tax treatment of crypto-backed loans. The second part of the special report was due to cover four additional strategies for reducing crypto tax bills, including establishing a company or leaving Australia entirely.

Related reading: Older investors are risking everything for a crypto-funded retirement and Baby boomers worth $64T are warming to Bitcoin, but suspicions remain.

Original source: Cointelegraph.