ATO warns bitcoin cryptocurrency investors can’t avoid paying tax

For those that own bitcoin or other digital coins, there’s no escaping your tax bill. Find out how the ATO can pin you down.

Don’t expect to play a game of “hide and seek” and win – that’s the message for the more than half a million Aussies that have cryptocurrency investments.

It comes after the Australian Taxation Office revealed it had extended a partnership with Australia’s cryptocurrency exchanges requiring them to hand over their trading data until 2022-23.

It’s part of a campaign from the ATO, which is out to smash the myth that cryptocurrency gains are tax-free or only taxable when the holdings are cashed back into Australian dollars – and its partnership with exchanges is helping it to target taxpayers.

ATO assistant commissioner Tim Loh warned Aussies that when it comes to crypto investments its “not a game of hide and seek”, with the exchanges offering excellent data-matching capabilities.

“It’s the way we want to go about making sure people comply with their tax obligations in relation to cryptocurrency,” he told news.com.au.

“Cryptocurrency prices have skyrocketed over last 12 to 18 months. In June last year, bitcoin was worth $13,000, in April this year it was $80,000 and today it’s about $46,000. It’s something we know people are going to be investing in more in upcoming years and we want to make sure people understand what their tax obligations are.”

RELATED: Aussies could get $2600 back in tax

More than 500,000 Aussies have crypto investments, according to the ATO. Picture: iStock

He said around 550,000 taxpayers are expected to receive a pop-up message when they lodge their returns.

“We will remind taxpayers who own cryptocurrency by sending a pop-up message if they lodge their own tax return through the myTax portal or a message will be sent to their registered tax agent just to remind them to include cryptocurrency gains and loses,” he said.

“In some cases, where there is some egregious behaviour we use that data match protocol to use that information to select taxpayers for audits.”

What information the ATO needs

The ATO closely tracks where cryptocurrency interacts with the real world through data from banks, financial institutions and cryptocurrency exchanges, he said.

Cryptocurrency is seen like other investment assets such as shares and it’s really important to keep good records in term of working out gains and loses, Mr Loh said.

This includes the Australian dollar amount when you buy, swap or sell cryptocurrency, dates of transactions, what the transaction was for and details of the other party involved.

He said there is some great accounting software that can help people work out their cryptocurrency gains or loses while registered tax agents could also assist people who were unsure.

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

RELATED: How to get your $1080 in tax back

ATO assistant commissioner Tim Loh said the ATO closely tracks where cryptocurrency interacts with the real world through data from banks, financial institutions and cryptocurrency exchanges. Picture: Supplied

What the tax experts say

Working out crypto can be a difficult task due to the wild fluctuations in value and can be categorised in different ways.

Mardi Heinrich, KPMG tax partner, said the ATO is increasingly turning its focus towards cryptocurrency gains and it can closely track transactions through data from providers.

“If your crypto is not considered a personal use asset, then any disposal will generally need to be declared for capital gains tax (CGT) purposes and you may be entitled to a CGT discount where the asset has been held for at least 12 months prior to disposal,” she said.

The ATO outlines that cryptocurrency is a personal use asset if you acquire and use it within a short period of time and directly exchange it for items you personally use or consume.

“In most situations, cryptocurrency is not a personal use asset and will be subject to capital gains and the longer you hold cryptocurrency, the less likely the ATO considers it a personal use asset,” she said.

She advised crypto investors to keep robust records of transaction dates and values and warned a capital gains tax event will likely still arise upon transfer of cryptocurrencies, even where you have not yet converted your crypto into recognised currency.

According to tax accountants Moore Australia, most individuals would generally hold cryptocurrency as a capital gains tax asset.

“A key characteristic is the intention to hold the cryptocurrency as an investment for the long-term,” they said.

For example, if you held on to the cryptocurrency for more than one year, you would receive a 50 per cent capital gains tax discount on any subsequent gains.

But if you make recognised a loss from your investment, it can only be offset in the current year, they said.

Cryptocurrency price has wildly fluctuated making declaring gains and losses difficult without accurate records. Picture: The Daily Telegraph

Why the exchanges are co-operating

BTC Markets chief executive Caroline Bowler, which is one of the largest platforms in Australia, said working with government organisations such as the ATO, AUSTRAC and others is a normal part of doing business for an Australian company.

“It’s similar to banks and other financial institutions in Australia and a sign of how rapidly our sector has matured,” she said.

She agreed that the tax requirements on crypto are still a little complex.

“It’s to be expected given the complexity and rapid growth within crypto itself, whereas traditional finance developed at a far slower pace,” she said.

“What is important is that the ATO are willing to consult and understand, as part of this process. That is an encouraging sign.”

In fact, Ms Bowler’s own accountant was contacted by the ATO last year to make sure she was declaring her cryptocurrency gains and losses.

“Happy to confirm, my taxes were all up to date,” she said.

The ATO has published a fact sheet to help investors with their tax obligations when it comes to cryptocurrency.