Dabbled in crypto? Don’t forget your tax obligations!

Bitcoin, Ethereum, Polkadot, Ripple, even Dogecoin – interest in cryptocurrencies and the things they buy (like the surge in NFTs) has certainly ramped up in recent times. We’ve also seen how volatile the market can be with all-time highs met with sudden and significant corrections – it’s a risky game.

For those who may have tried to “get rich quick” through cryptocurrency trading, it’s a timely reminder that cryptocurrencies are treated by the ATO in a similar way that they treat other investment assets like property and shares – it’s potentially subject to capital gains tax.

As we wrote in one of our blogs in 2019, the ATO are keeping an eye out on Australians who are trading in cryptocurrencies and are working with a number of service providers including brokerage services, payment facilitators, exchange services and even bitcoin ATM providers to match data relating to cryptocurrency transactions. You can’t hide from the tax man!

A reminder on your obligations

This year, the ATO will be writing to around 100,000 taxpayers with cryptocurrency assets urging them to review their previously lodged returns.

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 has said they are looking at whether a taxpayer has omitted capital gains on the sale of cryptocurrencies when preparing their income tax returns.

Just because you might think cryptocurrencies operate in an “anonymous” digital world, it doesn’t give you license to ignore your tax obligations.

How to report your cryptocurrency gains or losses

As with any asset, it’s important you keep records of your cryptocurrency transactions for tax purposes. Depending on the exchange you trade on, you may be able to find a report of these transactions within your exchange account – but it’s important to keep your own back up records where possible.

Come tax-time these records will help you calculate any capital gains or losses you may need to report. Working with a qualified accountant is often the easiest way to determine your tax obligations and make the right claims on your return.

Our team of accountants at The Hopkins Group are well versed in understanding the intricacies of Australian tax law and your obligations. With more and more advice coming out of the ATO on cryptocurrencies specifically, seeking quality advice is a safe bet come tax time. Speak to an accountant today to discuss your situation and get an idea of your personalised next steps.