Tax blitz to hit Bitcoin investors

Tax-dodging Bitcoin investors will be confronted by the full investigative powers of the tax office.

The escalation of the ATO’s crusade against Bitcoin is part of a growing international movement in recent weeks to crack down on Bitcoin tax avoidance. Picture: AFP

Tax-dodging Bitcoin investors will be confronted by the full ­investigative powers of the tax ­office, which has revealed it will use anti-money laundering legislation due to come into force next month as the basis for a long-awaited blitz on cryptocurrencies.

Under the legislation, the ATO will use compulsory 100-point identification checks for Bitcoin investors as part of its new arsenal, giving it the ability to roll out its data-matching techniques to take on the previously opaque cryptocurrency world.

ATO deputy commissioner Will Day said the tax office would rely on “increased transparency” from the government’s anti-money laundering counter-­terrorism financing rules to tackle cryptocurrency tax cheats.

The escalation of the ATO’s crusade against Bitcoin is part of a growing international movement in recent weeks to crack down on Bitcoin tax avoidance — most ­notably in the US.

Four days ago, Coinbase, one of the world’s biggest crypto-­currency exchanges, announced to its client base that it had received a mass “summons” from the US Internal Revenue Service, for the ­account details of 13,000 investors. Coinbase revealed that the ­requested details had included “taxpayer ID” numbers, as well as name, birthdate, address, and ­historical transaction records for “certain higher-transacting customers”.

The ATO is believed to be planning to implement a similar crackdown, as it battles perceptions that Bitcoin and other crypto­currencies have emerged as great tax-evasion loopholes — partly because they are used by organised crime and other investors to preserve anonymity.

The price of Bitcoin has plummeted since regulators around the world started to clamp down on cryptocurrencies with bans and other measures. After hitting a high just below $US20,000 in mid-December, the price has settled at about $10,600.

Mr Day said the anti-money-laundering legislation was the starting point for the ATO ­stripping back the anonymity ­involved with cryptocurrencies.

“The Anti-Money Laundering Counter-Terrorism Financing Act ensures that there is investor transparency through ‘know your client’ requirements,” he said. “The increased transparency the law provides, combined with our data-matching techniques and a range of existing powers which address unexplained wealth, strengthen the ATO’s ability to tax cryptocurrency profits.”

National Tax Liaison Group member and CPA Australia ­policy chief Paul Drum said: “This is a watershed moment for the ATO and Austrac, enabling them to access and thoroughly ­review cryptocurrency exchange account data for the first time.

“The effectiveness of the ­anonymity of Bitcoin and other cryptocurrencies is starting to fade. These coming changes mean that people shouldn’t ­assume they can hide forever behind blockchain technology, nor should they ­assume there are no tax consequences.”

It is understood the ATO will also use commissioner Chris ­Jordan’s international powers as chief of the OECD’s global anti-tax-avoidance taskforce to investigate and regulate the flow of cryptocurrencies between countries, and assess whether these flows have any tax implications.

Mr Jordan, who will appear ­before Senate estimates today, is already using his international leadership role to pursue joint international audits of multinational corporations to stop them from escaping the grasp of tax authorities.

Potentially helping Mr Jordan’s mission is the fact that Australia has a double tax treaty with the US and cryptocurrency hotspots such as Japan.

Under the new anti-money laundering rules, Austrac, Australia’s financial intelligence agency, will have its information-gathering powers extended to digital currency exchanges, particularly cryptocurrency markets, in a bid for greater transparency to prevent money laundering, terrorism financing and tax evasion. Apart from new customer identification obligations, these exchanges will now also be required under law to report any suspicious transactions, as well as any cash transactions of $10,000 or more.

Mr Drum said many people who had traded in cryptocurrencies for years were unaware of their tax obligations.

“Many people think of cryptocurrency trading as similar to having a bet at the casino, or backing Winx at the races,” he said. “But there are usually tax consequences — and the stakes can be very high.”

Mr Drum said he was recently advised of a member’s client who had turned a modest $600 investment in the cryptocurrency Ethereum several years ago into about $4m-$5m. “They have been starting to crystallise the gains, and are now seeking advice on the tax consequences of their investment,” he said. “One of the questions they asked was whether it was exempt under the CGT personal use asset rules. This is going to be a question asked time and again by cryptocurrency traders, and it will come down to the facts of each individual case.”

The ATO’s guidance states that there are no tax implications for Bitcoin in certain circumstances. “Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less,” it says.