ATO crackdown on undeclared bitcoin, cryptocurrency gains

Bitcoin traders may be in for a shock, with thousands already issued with please-explain letters.

The Tax Office is stepping up its queries of people with transactions in cryptocurrencies, sending out letters questioning why they haven’t declared past transactions in tax returns.

Melbourne-based accountant and tax adviser Adrian Raftery said some of his clients had recently received queries from the ATO about declaring cryptocurrency transactions for the tax year 2018-19.

He said taxpayers needed to be aware that the ATO was able to get data on cryptocurrency transactions from brokers and they were liable to pay tax if they had sold cryptocurrencies at a profit.

He believed the letters were part of a broader campaign by the ATO begun last year to follow up on cryptocurrency transactions.

“Chat forums show that the ATO has been sending out please explain ‘love letters’ to thousands of cryptocurrency investors in the past few weeks for not declaring their trading activities in their 2018-19 tax returns,” he said.

Taxpayers should also be prepared to amend their 2019-20 tax returns if they had traded in cryptocurrencies during that financial year.

“People who have traded in cryptocurrencies such as Bitcoin should be aware that the exchanges they are trading through have provided details of the trades to the ATO as part of its data matching system.

“Over the past decade, the ATO has been chasing people for not declaring interest and dividends,” he said. “Now they have extended it to cryptocurrencies.

“Whatever they do, people who get these letters should not ignore them and think they will go away.”

Mr Raftery said tax could be liable even if a person had traded one version of a cryptocurrency such as Bitcoin for another such as ethereum.

A spokesperson for the ATO said the tax office had contacted some 100,000 people in the 2020 calendar year who had traded in cryptocurrency “to remind them of their tax obligations and to review their returns”.

“We will continue to contact taxpayers where we can see they have not reported their cryptocurrency transactions correctly.”

In addition to contacting clients about past return, s the ATO, for the first time, also contacted some 140,000 people and their tax accountants last year who had cryptocurrency transactions, before they filed their tax returns as part of its pre-fill program to remind them to include transactions in their tax returns.

The spokesperson said data collected by the ATO had shown that there were some 600,000 Australian taxpayers invested in cryptocurrencies through exchanges as of last June. This was up from 470,000 the year before.

“The buying and selling of cryptocurrency will generally be subject to capital gains tax and must be reported to us,” the spokesperson said.

“Examples include selling, trading or exchanging cryptocurrency, converting it into Australian dollars or using it to obtain goods and services.”

The ATO said its primary use of data of the 600,000 taxpayers listed as having cryptocurrencies was to “help educate investors on the tax obligations and remind them to include any of these in their tax returns as appropriate.

“Those who correct their return will not receive any penalties, however anyone choosing not to act may receive further scrutiny and an audit of their affairs,” the spokesperson said.

The ATO recommends traders keep records of the purchase of cryptocurrencies, the agent, accountant and legal costs, what the transaction was for and who the other party was. Mr Raftery said some people may have made a loss and not be liable for tax.