Each year the ATO matches million of transactions against multiple sources in order to ensure that taxpayers are correctly disclosing their tax obligations. You might even be familiar with some of these such as bank interest, payment summaries from your employer, the sale of real property and the sale of shares. Now the ATO says it will begin collecting records from Australian cryptocurrency designated service providers (DSPs) to ensure people trading in cryptocurrency are paying the right amount of tax.
What is cryptocurrency?
The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrencies can be bought or sold on an exchange platform using conventional money. The ATO says the innovative and complex nature of cryptocurrencies can lead to a genuine lack of awareness of the tax obligations associated with these activities.
How will the ATO collect and match data relating to cryptocurrency transactions?
The data collected from third-parties will include purchase and sale information to better identify taxpayers who have failed to disclose their income details correctly. Information collected will include a range of sale and contracted-related details, as well as transaction dates and times and amounts of transfers for individual account holders. The ATO will be making contact with a ranges of service providers to obtain this information including brokerage services, payment facilitators, exchange services and even bitcoin ATM providers. At this stage the data matching will focus on transactions that occurred from 1 July 2014 and will continue up until 30 June 2020. The ATO said it was estimated there are between 500,000 to 1 million Australians who have invested in cryptocurrency.
What are my obligations?
Cryptocurrency is considered a CGT asset for tax purposes and as such any profits made from trading it could be liable for capital gains tax. However, an Australia resident taxpayer who has held the currency for greater than 12 months may be entitled to the 50% CGT discount. The ATO have said they are looking at whether a taxpayer has omitted capital gains on the sale of cryptocurrencies when preparing their income tax returns.
The ATO have said that following the data matching process, taxpayers may be contacted by the ATO and will be given at least 28 days to clarify any information that has been obtained from the data provider. As usual the ATO has said penalties may be significantly reduced in circumstances where they were voluntarily contacted prior to audit activity commencing.
Next Steps
If you have transacted in cryptocurrency and have not considered the tax implications then please contact one of our accountants to discuss. We have seen an increase in the number of clients of coming to us with these queries and increasingly the ATO are releasing more guidance as to the tax consequences.
