How to Calculate Tax on Crypto Used in Margin or Leveraged Positions

Margin trading and leveraged crypto products, including futures, perpetual swaps, options, and contract-for-difference (CFD) products, are used by a growing number of Australian cryptocurrency investors seeking amplified exposure to crypto price movements. These products introduce significant additional complexity to Australian crypto tax obligations, both in terms of how profits and losses are classified and in terms of the record-keeping required to correctly report each trade.

As of 1 July 2027, CGT rules in Australia are set to change. Please visit this page for the revised tax rules.

Unlike spot crypto purchases (where you buy and hold a crypto asset directly), leveraged instruments are derivatives: they derive their value from an underlying crypto asset without necessarily involving direct ownership of that asset. The tax treatment of derivative income and gains is distinct from the capital gains rules that apply to spot holdings. The distinction between capital gains and ordinary income (a trader versus investor analysis) is especially relevant in the leveraged trading context, where frequent high-volume trading is common.

 

Spot Crypto vs Derivatives: Classifying the Product

The first step in assessing the tax treatment of margin trading activity is understanding whether the product involves actual crypto ownership or derivative exposure. A margin trading account on a centralised exchange that allows you to buy Bitcoin with 2x or 5x leverage using borrowed funds is typically still an acquisition of actual Bitcoin, with the exchange holding the asset as collateral for the loan. In this structure, the capital gains tax rules that apply to spot Bitcoin still apply, and a disposal of the leveraged Bitcoin position triggers CGT on the gain or loss.

Perpetual futures, CFDs, and synthetic derivatives, however, do not involve acquiring the underlying crypto asset. When you open a long or short perpetual futures position on an offshore exchange, you are entering a derivative contract that settles in cash (or in the exchange’s stablecoin). No Bitcoin changes hands on entry or exit. These derivative contracts are not capital assets under the Australian tax framework in the same way that spot crypto holdings are: profits and losses on derivatives are generally assessed as ordinary income and losses, not as capital gains.

The practical implication: if your leveraged crypto trading involves actual crypto ownership (margin lending on spot positions), the capital gains regime applies. If you are trading derivatives that do not involve owning the underlying (futures, CFDs, options on crypto), the profits and losses are likely ordinary income events, assessed in full without the 50 per cent CGT discount, and losses may be deductible as business losses if you meet the relevant tests. The distinction matters significantly for tax outcomes.

 

The Investor vs Trader Distinction in Leveraged Trading

Whether your leveraged crypto activity is classified as investing (producing capital gains) or trading (producing ordinary income) has significant tax consequences. The investor versus trader analysis covers this distinction in detail. For leveraged crypto traders, the frequent, high-volume nature of the activity often tips the analysis toward the “trader” classification.

Characteristics that point toward the “trader” classification include: high frequency of transactions, systematic profit-making approach, carrying of trading positions as a business, use of short positions and derivatives as core strategy, and treating trading as a main or significant income source. For traders, all profits are ordinary income (no CGT discount), losses are potentially deductible against other income (subject to the non-commercial loss provisions), and the deductible expenses of the trading business (platform fees, data costs, equipment) reduce the taxable income.

For investors who occasionally use leverage to amplify spot positions without frequent trading, the capital gains regime may still apply. The 50 per cent CGT discount for positions held over 12 months can apply to leveraged spot crypto positions if the holding period qualifies. The interest cost of the borrowed funds used for the leveraged position may be deductible as an expense of earning investment income under Section 8-1, subject to the nexus between the expense and the income-producing activity being established.

 

Recording Margin Trades for Tax Purposes

Every entry into and exit from a leveraged position is a taxable event. For margin positions involving actual crypto ownership, the acquisition date, AUD purchase price, and leverage amount must be recorded. For derivative contracts, the open and close dates, the profit or loss in AUD on settlement, and any funding or rollover charges paid must be recorded. The gross trade settlement amounts, not the net (after fees), are the amounts to record, with fees then deducted separately.

Funding rates on perpetual futures positions (paid or received based on market conditions) are income events in their own right: funding received is ordinary income, and funding paid may be deductible. These need to be recorded separately from the gain or loss on the position itself, and many crypto tax software platforms now have specific handling for perpetual futures funding rate transactions.

Most major derivative exchanges (Binance Futures, Bybit, dYdX) provide trade history exports that include entry price, exit price, realised PnL, fees, and funding. These exports are the starting point for tax calculation, but they are typically denominated in USD or USDT. Converting each settlement amount to AUD at the AUD/USD rate on the settlement date is required for Australian tax purposes. This conversion introduces additional complexity, particularly for traders who settle hundreds of positions per year.

 

Liquidations and Loss Treatment

Liquidation of a leveraged position (where the position is automatically closed by the exchange due to margin exhaustion) is a disposal event. The loss on liquidation is calculated as the remaining value at liquidation minus the original cost base of the position (for capital assets) or as the realised loss on the derivative contract (for derivatives). Liquidation losses are real tax losses that can offset gains or, for traders, may be deductible against income.

For investors who experience significant liquidation losses in a year, tax loss harvesting of other positions with unrealised losses can maximise the available offsets. Capital losses from liquidations offset capital gains from other crypto disposals. Ordinary losses from derivative trading activity are subject to the non-commercial loss provisions, which may restrict their use in the current year if the activity does not meet the relevant tests.

The legal risks of crypto investing in the leveraged context include platform risk (exchange insolvency) and regulatory risk. For investors who lose crypto on a collapsed exchange that offered leveraged products, the crypto exchange collapse tax guide covers how these losses are treated. The ATO’s reporting requirements apply equally to losses from leverage as to gains, and losses that are not documented cannot be claimed.

 

Using Crypto as Collateral

A question that arises for investors who borrow against their crypto holdings (using crypto as collateral for a loan, rather than selling it) is whether depositing crypto as collateral triggers a CGT event. The ATO’s position is that a loan secured by crypto collateral, where the borrower retains beneficial ownership of the collateral and can reclaim it on repayment, does not trigger a CGT event on the collateral deposit. The CGT event occurs only when there is an actual change in beneficial ownership.

However, if the collateral is liquidated by the lender due to a margin call (as commonly occurs in crypto-collateralised lending platforms), the liquidation is a disposal event at the liquidation price, triggering CGT on the gain or loss. The DeFi tax guide covers crypto-collateralised lending on decentralised protocols, where the automatic liquidation mechanisms of smart contracts create disposal events that must be captured in tax records.

This article is for educational purposes only and does not constitute financial or tax advice. Australian crypto tax laws are complex and subject to change. Always consult a registered tax agent or accountant for advice tailored to your specific circumstances.