ATO Assistant Commissioner Tim Loh says the tax office will be writing to around 100,000 taxpayers with cryptocurrency assets to explain their tax obligations, according to a news.com.au report.
This is apparently due to the incorrect belief some cryptocurrency investors hold that gains from their investments cannot be traced, or that they are only taxable when converted to AUD.
Accountants Daily echoes the message, saying the ATO’s previous “good faith approach” to crypto assets isn’t likely to last much longer.
So, what does the ATO want you to know about the crackdown, and what are some of the tax rules around crypto?
Breaking down the message
- In addition to sending letters to 100,000 people about their previous returns, the ATO will be prompting 300,000 people to accurately report their crypto activities in their current returns.
- This year, the ATO will have greater access to data than in 2020 and will be more able to trace transactions through financial institutions and cryptocurrency exchanges.
- The tax office intends using data-matching methods to link crypto transactions to individual taxpayers.
- Investors are being urged to check their previous returns and to amend them if they have errors or missing information. Taxpayers who do this will receive more lenient penalties than those who don’t, and will also be less likely to attract an audit.
- Mr Loh says it’s not a “game of hide and seek”, as the tax office already has the information it needs and is simply asking people to follow the rules.
So what are the rules when it comes to crypto and tax?
The ATO classifies cryptocurrencies as an asset and not as a currency. Gains from investing in crypto are treated in a similar way to other assets (like shares for instance).
What this means is that Capital Gains Tax (CGT) applies for any gains made on crypto when you dispose of it. CGT also applies when disposing of non-fungible tokens.
When a cryptocurrency is used in a business however, (such as in the buying and selling of goods and services), it is treated by the ATO as ordinary income. This means it will be subject to income tax and GST, based on the cryptocurrency value in AUD.
Crypto can also be treated as a personal use asset, in which case it would be tax-exempt. However, this only occurs in limited circumstances according to the tax office.
What can you do?
- Make sure to keep thorough records of all your crypto transactions. Your records should include the transaction date, the values in AUD, the purpose of the transaction, and the identify of the other party (a wallet address will do).
- Keep all business and personal crypto activities and records completely separate from each other.
- Check your previous returns and amend them if necessary, to avoid steep fines and audits.
Looks like things are becoming much tighter for crypto investors at tax time!