'We will be writing': ATO's tax warning about crypto
The Australian Taxation Office (ATO) is concerned that many taxpayers believe their cryptocurrency gains are tax free or only taxable when cashed back into Aussie dollars.
ATO data shows a dramatic increase in trading since the beginning of 2020.
It is estimated that there are over 600,000 taxpayers that have invested in crypto-assets in recent years.
“This year, we will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns,” ATO assistant commissioner Tim Loh said.
“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.”
Last year, the ATO directly contacted around 100,000 taxpayers who had traded in cryptocurrency and prompted 140,000 taxpayers at lodgment.
Loh explained that gains from cryptocurrency are similar to gains from other investments, such as shares.
Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax (CGT) and must be reported.
CGT also applies to the disposal of non-fungible tokens (NFTs).
“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” Loh said.
“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer.”
The ATO matches data from cryptocurrency designated service providers to individuals’ tax returns, helping us ensure investors are paying the right amount of tax.
“We know cryptocurrencies can be complicated. That’s why our focus is on helping people get it right.”
Yesterday, also remarked that cryptocurrency was not free from tax obligations.
Making sure you get it right
The ATO said the best way to ensure you’re not going to get in trouble at tax time is to keep accurate records.
This means taking note of the date of transactions, the value in Australian dollars, the time of transactions, what they were for and who the other party was – even if only their wallet address.
Another helpful tip to remember is that holding your crypto for at least 12 months as an investment may mean you’re entitled to a CGT discount.
In limited circumstances cryptocurrency may be a personal use asset.
“If you realise you’ve made a mistake and correct your return, we will significantly reduce penalties,” Loh said.
“However, failing to report on crypto-assets and not taking action when reminded will prompt penalties and potentially an audit.”
Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter.