ATO cracking down on crypto
Individuals and businesses trading in cryptocurrency (crypto) and non-fungible tokens beware!
The ATO is cracking down on individuals not including capital gains from selling crypto in their tax returns. Although many people think crypto is relatively anonymous, the ATO is obtaining transaction data from crypto exchanges for its data-matching program. The ATO is also closely monitoring where crypto interacts with the real world through data from banks and financial institutions to trace the money back to taxpayers.
The ATO will then match the data obtained from crypto exchanges to tax returns to ensure that the right amount of tax is being paid. Data from approximately 400,000 to 600,000 individuals will be obtained each year.
Selling crypto and tax
The meteoric rise of crypto and NFTs (non-fungible tokens) has raised many eyebrows and has now also caught the attention of the ATO. Whether you’re selling crypto or NFTs as an individual or business, capital gains tax (CGT) applies to any gains you make regardless of whether the gain is in foreign currency or Australian dollars.
The position is different if you are carrying on a business of trading in crypto – so you need to seek advice regarding your situation.
Most people are now familiar with crypto, which is a type of digital money created from code and usually takes the form of tokens or coins. The most well-known cryptos include Bitcoin, Ethereum, and Dogecoin. Non-fungible tokens are a comparatively more recent development which basically consist of a unit of data stored on a ledger to certify that a digital asset is unique. This has mostly been applied to artwork but can also include photos, videos and other types of digital files.
Based on its data holdings, the ATO will be writing to around 100,000 taxpayers with crypto assets explaining their tax obligations and urging them to review their previously lodged returns. It will also prompt another 300,000 taxpayers as they lodge their 2021 tax return to report their crypto capital gains or losses.
Capital gains tax on crypto
Individuals that dispose of crypto must work out if they made a capital gain or loss and report the resulting gain or loss in their tax return. Disposal of crypto can include exchange of one crypto for another crypto, trading, selling or gifting crypto and converting crypto to fiat, that is, a government issued currency (e.g. Australian dollars).
Transfers of crypto from one wallet to another while maintaining ownership is not considered to be a disposal. However, if your crypto holding reduces during this transfer to cover a transaction fee, this fee is a disposal and has CGT consequences. In addition, if you acquire a small amount of crypto and use it within a short time to make personal purchases, the crypto may be considered to be a personal use asset and not subject to CGT.
ATO crypto data matching
In conjunction with contacting taxpayers, the ATO is also conducting a data matching program which will consist of account identification and transaction data from crypto designated service providers for the 2021-2023 financial years. These details include the usual client identification information such as name, address, date or birth, phone number and email, but interestingly, now also includes social media account details. Transaction data will also be obtained, including bank account details, wallet addresses, transaction dates/time/type, deposits, withdrawals, transaction quantities and coin type. It is estimated that records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year under the program.
Need help with crypto and tax?
If you or your business has been dabbling in crypto and need help to work out whether those transactions are subject to CGT or whether some other tax treatment applies, we can help.
The ATO is keeping a close eye on this relatively new financial area and it pays to get it right.
Contact us today for expert help and advice.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.