The Australian Tax Office is taking a sterner stance with cryptocurrency traders regarding their tax obligations. Stating “it’s not a game of hide and seek.”
Despite massive public awareness campaigns, many Aussie crypto traders and investors remain ignorant of the tax regulations on digital assets such as cryptocurrencies and NFTs (non-fungible tokens).
Some think cryptocurrency trading is not regulated, while the vast majority think their trading and investing is anonymous in the digital realm. That is no longer true.
Mr. Tim Loh, an assistant commissioner with the ATO, said,
“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations.”
As the ATO’s warnings become more urgent, it’s time for all cryptocurrency traders and investors in Australia to pay close attention and do the right thing.
Crypto Is Treated as an Asset, Not a Currency
The government treats cryptocurrency as investment assets such as shares. As with share trading, you are subjected to capital gains tax (CGT) every time you buy or sell crypto assets, swap one crypto for another, or change crypto to fiat currency.
You also incur CGT if you give crypto assets to someone else as a gift or use it to buy goods and services. The rules are much the same when it comes to NFTs as well.
Crypto assets are mostly classified as “personal use CGT assets” for “personal use or enjoyment.” In this case, capital gains or losses always apply.
However, crypto is not regarded as a personal use asset in some cases, but that just means it will be taxed differently. These include:
- When crypto is used as an investment. According to the ATO, this where when crypto is held for 12 months or more before disposal
- Using crypto in a profit-making scheme, either as an individual or as a business. An example is consistent day trading
- Trading and investing crypto as a business
The question of whether the crypto is regarded as a personal use asset, an investment, or trading in the normal course of a business’ operations is determined at the time of disposal.
You should know capital gains made from personal use crypto assets that cost you less than AU$10,000 are disregarded. Always refer to the ATO’s treatment of cryptocurrencies for detailed information. Learn how crypto tax works in Australia.
ATO Has Excellent Data Matching Capabilities
With such a complicated tax framework around cryptocurrencies, it’s easy to shrug off the work. How will they know whether you reported your crypto gains accurately?
But chances are, they already know.
The ATO may not be able to track digital cryptocurrency transactions online, but they can and do track where crypto interacts with the real world. That includes banks, crypto exchanges, and other institutions.
Crypto exchanges are co-operating fully, having inked a deal to supply data on all trading activity on their platforms till 2022-2023. Robin Singh of a major Aussie crypto exchange says,
The ATO is collecting bulk records data from Australian crypto exchanges and comparing it to amounts entered on previous tax returns. Failure to declare crypto gains can attract a penalty of 75% of the outstanding tax liability.”
Now with excellent data-matching capabilities and growing blockchain tracking technology, crypto traders have nowhere to hide. Even peer-to-peer transactions may now be trackable, and it’s always safe to assume the ATO is watching.
Working together with government organisations such as the ATO and AUSTRAC is a normal part of doing business in Australia, explains BTC Markets chief Caroline Bowler. Ms Bowler also confirms that her taxes are up-to-date.
For the 600,000+ Aussies dabbling in crypto trading, the ATO will be sending a personal reminder to lodge your returns or review previous lodgements. They will message 100,000 of these traders directly, while about 550,000 in total will be prompted on the myTax portal at lodgement.
Current data indicates that there are at least 2.9 million Aussies already trading cryptocurrency. Most of these are young people looking to increase their wealth with highly lucrative but volatile crypto assets.
And, even with the strict rules surrounding crypto taxation, about 1 million Australians are likely to get into the crypto market soon. That will push the number to 4 million (about 20% of the total population.
Exchanges Also Working on Educating Users
Given how many new traders and investors don’t know about crypto taxation, major exchanges are also stepping up their efforts.
Top exchanges such as Coinbase and BTC Markets are committed to educating new and existing users regarding crypto taxes, supplementing the ATO’s efforts.
For example, BTC Markets allows you to process your tax reports right on their platform. It provides information on estimated taxable events, a snapshot of your wallet balance, a downloadable CSV transaction report, and a blockchain transaction report.
What You Need to Calculate Your Crypto Tax Obligations
With the highly volatile prices of cryptocurrencies, it can be difficult to pin down their real value. This in turn can make taxation a pain.
Since cryptocurrencies are taxed at their current dollar value at the time of disposal, it’s very important to keep accurate and detailed records of all transactions. These records should include transaction dates, sender and recipient information (including wallet addresses), and the purpose of the transaction.
That is not to mean cryptos are only taxed when converting back into fiat currency. To reiterate, all transactions including buying, selling, swapping and gifting are eligible for CGT.
However, crypto investors who hold on to their assets for more than 12 months at a time are eligible for a 50% CGT discount.
Those trading as a business must report each disposal of crypto assets as a business activity, and any item held as trading stock. Learn more about how to file your crypto taxes here.
There Is a Great Deal of Misreporting—ATO
In a session with the Senate Select Committee on Australia as a Technology and Financial Centre, the ATO revealed that it believed there is “a great deal of misreporting about crypto trading in the country.”
As opposed to deliberate non-compliance, the ATO also believes that there is a lot of “misunderstanding” about the laws relating to cryptocurrency. It’s this belief that is causing the ATO to continue educating crypto traders regarding tax laws.
However, criminal behaviour will not be tolerated. According to Mr Loh, the Tax Office will use a data matching protocol to spot any “egregious behaviour.” Those spotted can expect audits and possible heavy penalties.
Luckily, the Office is still giving traders plenty of time to do the right thing. You can correct your returns and correct previous mistakes without incurring big penalties.
“We know cryptocurrencies can be complicated. That’s why our focus is on helping people get it right,” says Mr Loh.
Can Australia Keep Up With Developments in Crypto?
This is not the first time the government has been playing catch-up with cryptocurrencies. Despite wide-ranging regulations in the crypto industry, there is still a lot to be done to keep the multi-billion dollar market moving ahead.
For starters, the legal framework needs to do more for consumer protection. At the same time the ATO is seeking to collect more taxes, the Australian Securities and Investments Commission has issued a warning to investors to “be wary of investing in crypto-asset financial products … through unlicensed entities.”
The warning comes after some traders complained of “significant losses” when trading on unlicensed platforms. A series of major global crypto hacks and scams have also rocked the crypto industry, leading to growing security concerns.
The authorities can only regulate local licensed crypto entities. Any offshore platforms are still highly risky to traders.
The other challenge relates to the debanking of crypto-related businesses by Australia’s “Big Four” banks. Despite repeated denials, temperatures are rising as traders are taking the banks to court. ANZ recently settled after a tribunal hearing, and more could follow suit.
Even as Senate talks continue into how Australia could become a global finance and technology hub, the role of crypto in this future remains blurry. The Reserve Bank of Australia has been looking at the idea of a central bank digital currency (CBDC) and recently hired a research team.
As the Australian Tax Office becomes more aggressive in its efforts to bring in crypto tax dollars, traders and investors need to start playing ball.
The myth of an unregulated crypto industry is now far gone. In its place, we have crypto trading institutions very similar to traditional banks and share markets. With the cooperation of crypto exchanges and banks. The ATO now has enough data to come after defaulters.
In the words of Mr Loh,
“… failing to report on crypto-assets and not taking action when reminded will prompt penalties and potentially an audit.”
As a crypto trader or investor, it is time to do your duty and understand what your tax obligations are. As always, this information does not constitute tax or financial advice and you should defer to the professional opinion of a licensed financial advisor.