You shouldn’t expect to win in a game called ‘hide and Seek’ – this is the message for more than half a billion Australians who have crypto investments.
This comes just a few days after the Australian Taxation Office announced it had extended a partnership to Australia’s cryptocurrency exchanges, requiring them all to turn over their trading data up until 2022-23.
It is part of an ATO campaign to discredit the myth that cryptocurrency gains are either tax-free or taxable if they are converted back into Australian dollars. The ATO’s partnership with exchanges helps it target taxpayers.
Tim Loh, ATO assistant commissioner, warned Aussies about crypto investments. The exchanges offer excellent data-matching capabilities and it’s not a game of hide & seek.
He told news.com.au, “It’s how we want to go about making certain people comply with their tax obligations regarding cryptocurrency.”
Over the last 12-18 months, ‘Cryptocurrency price have risen dramatically. Bitcoin was worth $13,000 in June 2013, $18,000 in April 2012, and now it is worth $46,000. We know that people will be investing more in bitcoin in the future and want to ensure people understand their tax obligations.
He stated that approximately 550,000 taxpayers will receive a pop up message after they file their returns.
He said that he would remind those who own cryptocurrency to send a pop-up message to them if they file their tax returns through myTax portal. Or, a message to their registered tax agent to remind them to include any cryptocurrency gains or losses.
“In certain cases, when there is some egregious behavior, we use that data matching protocol to use that information for selecting taxpayers to audit.
What information does the ATO need?
He said that the ATO closely monitors where cryptocurrency interacts to the real world using data from financial institutions, banks, and cryptocurrency exchanges.
Cryptocurrency can be compared to shares or other investments assets, so it is important to keep track of your gains and losses.
These include the Australian dollar amount used to buy, trade, or swap cryptocurrency, the dates of transactions, the purpose of the transaction, and the details of the other person involved.
He stated that there are great accounting software available to help people calculate their cryptocurrency gains and losses. Registered tax agents can also be used to assist those who are unsure.
The ATO will write to approximately 100,000 taxpayers holding cryptocurrency assets this year, asking them to review any previously filed returns.
What tax experts have to say
Due to wild fluctuations in crypto’s value, it can be difficult to work out the details. Crypto can also be classified in many different ways.
Mardi Heinrich from KPMG Tax Partners said that the ATO is shifting its attention towards cryptocurrency gains and can closely track transactions using data from providers.
She stated that if your crypto is not considered personal use, any disposition will need to be declared for capital gain tax (CGT). You may also be eligible for a CGT discount if the asset was held for at least 12 month prior to disposal.
According to the ATO, cryptocurrency can be considered personal use if it is acquired and used within a short time period and then exchanged for goods or services you use.
She stated that cryptocurrency is not considered a personal asset in most cases and would be subject to capital gains. The longer you keep cryptocurrency the less likely it will be considered a personal asset by the ATO.
She advised crypto investors that they keep accurate records of transactions dates and values. She also warned that a capital gains event could still occur upon the transfer of crypto, even if you have not converted your crypto into a recognised currency.
Moore Australia tax accountants state that cryptocurrency is a common capital gains asset.
They stated that a key characteristic of cryptocurrency investing is their intention to keep it as a long-term investment.
If you hold on to cryptocurrency for longer than one year, you will receive a 50% capital gains tax credit on any future gains.
They said that if you recognize a loss in your investment, it cannot be compensated for in the current calendar year.
Why exchanges cooperate
Caroline Bowler, chief executive of BTC Markets, stated that working with government agencies such as ATO, AUSTRAC, and other Australian organizations is part of being a business in Australia.
She said that it was similar to other Australian financial institutions and a sign of the rapid maturation of our sector.
She acknowledged that crypto’s tax regulations are still quite complex.
She said that it was to be expected considering the complexity of crypto and its rapid growth, while traditional finance developed at much slower rates.
“It is vital that the ATO is willing to consult with and understand as part of this process. This is a positive sign.
The ATO actually contacted Ms. Bowler’s accountant last year to verify that she was correctly declaring her cryptocurrency gains.
She said, “Happy to confirm that my taxes are up-to-date.”
To assist investors in understanding their tax obligations regarding cryptocurrency, the ATO has released a factsheet.