Bitcoin boom’s bite: investors to pay tax on profits
PEOPLE who profited from the recent billion-dollar Bitcoin boom are now facing a potentially costly tax time.
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PEOPLE who profited from the recent Bitcoin boom are now facing a potentially costly tax time.
While the price of the world’s most popular cryptocurrency has more than halved since its peak in December, gains made by many lucky investors who rode the Bitcoin wave higher are being watched by the Australian Taxation Office.
Almost $4 billion of digital currencies were traded in Australia last year, and new rules came into force in April to ensure all cryptocurrency transactions above $10,000 be reported to authorities.
ATO assistant commissioner Kath Anderson said the rule change meant cryptocurrency exchanges now had to identify people in a similar way that banks did, and the ATO had started collecting their information.
“While many believe cryptocurrency provides anonymity, operating in the digital world leaves electronic footprints,” she said.
“We have sophisticated systems that allow us to match data from banks, financial institutions and online exchanges to follow the money back to the taxpayer.”
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Ms Anderson said cryptocurrencies were seen as a form of property, rather than actual currency, for tax purposes.
“For the majority of individuals, buying and selling will result in a capital gain or capital loss, which needs to be reported in their tax return.” Capital losses can be used to offset an individual’s other gains.
H & R Block director of tax communications Mark Chapman said Bitcoin was “really on the radar” of the ATO after many taxpayers had jumped in.
“It raises lots of tax issues, and the ATO are seeing some abuses. They are looking hard at people who are using Bitcoin and they are also using third party information from Bitcoin exchanges,” he said.
Bitcoin’s price surged last year from below $US1000 in January to more than $US19,000 in December, before dropping to current levels near $US7600 ($10,000).
Financial consultant Paul Atherton said factors behind its recent falls included tougher regulations, governments shutting down crypto exchanges, and traders taking profits after the “mass-market consumer” surge of late 2017.
“It is very difficult to see what the immediate or short-term price is for Bitcoin because it is trading as a speculative asset,” he said.
“The value is only what someone will pay for it in the future, and that could be anything. Despite what crypto enthusiasts argue, there is no ‘market disruption’ happening and the number of vendors accepting cryptocurrency is either staying flat or falling.”
Research by the Australian Digital Commerce Association and Accenture found that more than 300,000 Australians traded more than $3.9 billion of cryptocurrencies in 2017. About half was Bitcoin, and almost one quarter was Ethereum.
Parke Lawyers managing director Jim Parke said people dealing with virtual currencies would be wise to seek legal and financial advice.
“If you hold cryptocurrency for personal use — that is, solely to purchase goods and services for personal needs — and you paid $10,000 or less to acquire it, there is generally no tax impact when you dispose of it,” he said.
“The line between personal use and investment use can be thin.”